| What Are PE Funds? | | | | investment sources used by VCs. |
| Private equity funds are limited partnerships or | | | | Risk -Taking |
| collective investment schemes, managed by | | | | Making investments in early-stage enterprises, |
| investment professionals, that invest in equity | | | | venture capitalist are exposed to greater risk taking. |
| securities - shares that represent ownership of a firm. | | | | As many as half of their funded ventures are usually |
| PE funds invest in portfolio companies and the | | | | expected to fail, therefore Vcs are more likely to put |
| acquisition price is based on a multiple of the | | | | their money into a multitude of start-ups, also asking |
| company's historical income. Multiples depend on the | | | | for high returns on investment, to minimize the |
| company's industry and size. The final aim of private | | | | possible loss of revenue. As PE firms invest in |
| equity funds is to exit investments for an IRR, that | | | | companies that have already proven themselves, the |
| is, internal rate of return. Exits are IPOs (initial public | | | | risk to lose their money is lower, as there is a quicker |
| offerings) of portfolio companies, sales through a | | | | return on investment than in the case of start-ups. |
| M&A (merger or acquisition) or secondary sales - | | | | Management Control |
| to another PE firm. | | | | VC and PE firms expect a high degree of control |
| How do PE funds differ from venture capital? | | | | over the management of the companies they invest |
| Although the terms private equity and venture capital | | | | in, such as a seat in the board of directors. Any |
| have sometimes been used interchangeably, with the | | | | corporate decision can be made only with their |
| dividing line between them having become less | | | | agreement and the positive aspect is that they |
| distinct in recent years, there are still some features | | | | provide assistance and expertise whenever |
| that represent differences to these processes. | | | | necessary. However, venture capitalists have proven |
| Corporate Lifecycle Stage Preference | | | | to be less intrusive in the funded companies' |
| Traditionally, VCs tend to provide start-up and | | | | operations than private equity firms. |
| early-stage capital for emerging businesses and | | | | Both venture capital and private equity firms are |
| technologies. PE firms fund more mature companies, | | | | excellent alternative business financing sources, as it |
| providing growth capital to consolidate and expand | | | | has become more and more difficult for enterprises |
| already existing firms (secondary rounds of money, | | | | to obtain significant bank loans. Having a good |
| mezzanine investments). | | | | business plan prepared, accompanied by a relevant |
| Investment Funds Source | | | | executive summary, and being able to prove |
| VC funds represent pooled investment capital having | | | | excellent execution skills to secure a high return on |
| institutions and wealthy individuals as sources. PE | | | | investment are the key factors for a successful |
| firms use funds acquired from equity securities, | | | | approach to business investors. |
| non-publicly traded stocks as well as pooled | | | | |