What is Venture Capital and Private equity?
Venture Capital firms are similar to private equity firms in that they invest large amounts of money in companies, to provide them with funding to enhance the target company. The idea is that the Venture Capital firm buys into the target company, improves it, or simply waits for the company to grow and then sells its stake for a profit.In contrast to private equity firms, venture capital firms usually invest in start-up companies and invest smaller amounts, and have a much higher percentage of their investments which fail.
However, because they invest in startup firms, if the firm succeeds the return is likely to be very high indeed, therefore offsetting any losses made previously. Venture capital can also include technical expertise.
Most venture capital comes from a group of wealthy investors, and other financial institutions that pool such investments or partnerships. This method of raising capital is popular among new companies or ventures with limited operating history, which cannot raise funds by issuing debt.
The downside for entrepreneurs is that venture capitalists usually get a say in company decisions, in addition to a portion of the equity. Jim Breyer, an early Facebook investor: Peter Fenton, an investor in Twitter: Peter Thiel, the co-founder of PayPal and Facebook's first investor; and Jeremy Levine, the largest investor in Pinterest. This are the famous venture capitalists.
Venture capitalists look for a strong management team, a large potential market, and service with a strong competitive advantage. They also look for opportunities in industries that they are familiar with, and the chance to own a large percentage of the company so that they can influence its direction.
Difference between Private equity and venture capital
what's difference between private equity and venture capital both of them are terms used to describe a type of investing in two privately held companies so as distinguished from investing in public companies the kind that you can invest in on NASDAQ or the New York Stock Exchange private equity in venture capital are invested in two privately held.Companies are held only by share their own held only by a few people there are four differences I'd like to highlight between the two right in private equity. Its invested in an established company.
It has been around for years is known in space as generally positive cash flow whereas venture capital is invested in a brand new idea that may just be starting up and is as uncertainty right that's number one number two private equities invested in proven concepts.
It's been around we know it's going to work we can look at financial statements going back several years whereas and the growth may not be all that rapid whereas in venture capital. We're looking for companies that can grow rapidly over the next few years right number three from the investor standpoint on the private equity side.
We're only looking for a return maybe two or three times our money over a few years but with less risk involved whereas on venture capital side of the equation, we're looking for at least a 10x10 times our money in three or four or five years with a fair amount of growth involved.
A fair amount of risks and then the final significant difference is private equity is invested is often used and invested with leverage so there's debt involved. So if we buy a company or buy into a company will borrow money from banks and others as part of that investment whereas in venture capital it's all equity there's not steady enough cash flow there to support debt.
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