| While both venture capital and private equity firms | | | | Another point of potential semantic confusion is that |
| provide cash in exchange for equity positions in | | | | "private equity" is also a commonly used term for |
| companies, the main distinction is the juncture in | | | | people operating the real estate investing space. |
| which the investment is made. With the exception of | | | | While the use of the phrase within the real estate |
| turnaround investments, private equity firms tend to | | | | sector has the same underlying financial meaning, the |
| invest in more established businesses with a history | | | | firms that provide private equity in the real estate |
| of positive, and preferably reliable, cash flow whereas | | | | sector are usually completely different firms than |
| venture capital firms tend to invest in earlier-staged | | | | those that typically invest directly in corporate |
| companies with a less proven market presence. | | | | entities. There are some exceptions to this, as some |
| The distinction between the terms venture capital | | | | investment firms invest in both companies and real |
| and private equity described above applies to the | | | | estate, but they tend to be very much in the |
| vernacular used in the United States. That is, in the | | | | minority. |
| United States, the two terms are used as if they are | | | | While we are discussing verbiage, we should also |
| distinctly different types of firms investing in | | | | note that the firms that make direct investments |
| different stages of corporate growth. In Europe, | | | | into businesses are often called by several names, all |
| however, the terms venture capital and private | | | | of the same meaning, including: PE firm, financial |
| equity may be used somewhat interchangeably in | | | | sponsor, investment firm, buyout firm or investment |
| that British English uses the term venture capital to | | | | company. Similarly, investment banks are often |
| describe a specific subset of the PE market. | | | | structured with a Leveraged Finance Group, which is |
| Therefore, in Europe, when someone speaks about | | | | often the same as the Financial Sponsor Group, which |
| private equity, they may in fact be referring to what | | | | is often part of the Capital Markets Group. These can |
| someone in the United States would call a venture | | | | all be a bit confusing until someone just tells you that |
| capital firm. | | | | they are multiple ways of saying the same thing. |