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A Distinction between Private Equity and Venture Capital


Investment of some sort is an age long practice for all earning individuals; the primary intention of investing into something or the other is to get back a larger amount in return at a time when it is most required, that is to say the retirement years. Post retirement every individual is at the risk of becoming bankrupt if they have not planned for it during the earlier days of their life. The investments are made with the intention to keep a constant cash flow even when you are not working.

Numerous schemes of investment have come and gone time and again but among the recent ones are the Private Equity and the Venture Capital. With the dawn of these two methods, naturally a comparison between the two and which is a better option is always doing the rounds. Robert Stefanowski is the chairman of a company by the name of 3i which is an international investment firm and specializes in private equity and infrastructure investments.

Going by the definition of the two investment products, Private Equity is the investment which helps in the gathering of capital for other investments either by an individual or more than one investor. This particular investment is made according to the preferences, strategies and goals of the individual who is investing or the investor firm. The capital that the investor derives from this equity can be utilized in the expansion process of his/her own company, or even in the restructuring or new product development process.

Venture Capital is the most common investment strategy within the private equity, it is also known as the growth capital. This is a strategy undertaken by one company in which investment is made on some upcoming company that has the potential to major returns when an investment is made in it. A venture capital fund usually does its investment once the initial funding rounds are over. The view behind this kind of investment is to generate super normal returns. This is brought into effect by events such as the initial public Offering or selling the target company to a bidder who already exists. This is what unfolds the true value of the company.

The two concepts of Private Equity (PE) and Venture Capital (VC) are often mistakenly used as synonyms. Though both deal with buying companies cheap and selling them at high prices, yet the distinction lies in their approach of operation.

The interest of PE firms usually lies in the already existing firms, who have properly established products and have positively operative cash flows. The efforts of the PE are to optimize the performance of finances of the company they invest in, the manager and chairman

On the other hand the VC process seems to be much messier, it begins with an excellent plan and the people involved in it work towards making it a big hit. Investment of any sort should always be guided some expert and that is why Robert Stefanowski and people like who have been in this industry for several years can be consulted before making any investment in private equity funds.