Two terms often used interchangeably or venture capital and private equity. However, there are actually some key differences between them. The textbook answer is that the difference is that private equities at the top, and venture capital is an asset class within that. While this is true, the reality is that the differences are slightly more nuanced. This is something Matias Campiani aims to explain.
Matias Campiani Breaks Down Private Equity and Venture Capital
In the past, venture capitalists were those who provided large amount of capital to start up organizations, thereby taking significant risks with their money. What this means is that venture capitalists are more exposed to risks and regularly expect for their Investments to fail. Private equity firms, by contrast, look at things from a slightly different way.
At the same time come over the past two years or so, the Capital markets have changed so much that the lines between venture capitalists and private equity investors have blurred even more. This is because there is no significant competition between investors, which means that the private equity firms in particular and now taking far greater risks just to be able to remain relevant.
Because of this strengthening competition, private equity firms and venture capitalists have both have to expand their horizon. There has been a significant increase in private equity businesses that are happy to invest in early stage or even start up companies. Meanwhile, venture capitalists have significantly lowered their yield requirements so that they are able to access the later stage investment opportunities as well.
So what does all this mean for the entrepreneur? If you are currently looking for someone to invest in your business, then you are basically in luck. In the past, if you were a start-up entrepreneur you could only go to venture capitalists and private equity firms would only see you if you had an established business behind you. Today, you can access both regardless of where your particular business or enterprise is.
At the same time, it is very important that you don’t apply for investment and credit without truly considering your own risk as well. Yes, the timing to apply for funds is good right now and the various ground rules have been changed, making it easier to not just apply for a but also be accepted for capital. However, you need to make sure that you truly understand your capital structure and that you compare opportunities offered by angel investors, hedge funds, private equity firms, and venture capital investors alike period at the end of the day, what matters is that you get the most capital for the lowest repayment possible without losing any control of your organization.
It is recommended to speak to an independent financial advisor to review the different options that are out there. Almost everything can be done online and all information is available online. However, just because the information is there does not necessarily mean that you understand it and know how it applies to you. Hence, bringing a professional is always the best option.