Private equity vs venture capital?

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27th Nov 2009 by Ellen Silverman

Private equity is an asset class consisting of equity securities in companies that are not publicly traded on a stock exchange. Investments in private equity involve either an investment of capital into an operating company or the acquisition of an operating company. Capital for private equity is raised primarily from institutional investors.

Among the most common investment strategies in private equity include leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital. In a typical leveraged buyout transaction, the private equity firm buys majority control of an existing or mature firm. This is distinct from a venture capital or growth capital investment, in which the private equity firm typically invests in young or emerging companies, and rarely obtains majority control.

Venture capital is a subset of a larger private equity asset class which includes venture capital, LBOís, MBOís, MBIís, bridge and mezzanine investments. Historically venture capital investors have provided high-risk equity capital to start-up and early stage companies. Venture capital is used for the launch, early development, or expansion of a business. The venture capitalists need to deliver high returns to compensate for the risk of these investments makes venture funding an expensive capital source for companies.

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13th Nov 2009 by Tom Lindmark

Private equity firms are investment partnerships in which relatively wealthy individuals put their money for investments in commercial enterprises. Generally PEs invest in established businesses with a track record. Venture capital companies are investment partnerships just like PEs but they specialize in financing early stage or start up ventures. Though they don't exclusively invest in high technology companies most of their investments tend to go to that sector. If you're thinking of investing in one or the other, it pretty much comes down to what you know, feel most comfortable with and which firm gives you a warm and cozy feeling. Both can provide great returns and both can blow all of your money.

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9th Nov 2009 In Finance 2 Answers | 2566 Views

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