In our venture capital blog series we aim to give you the lowdown on the different types of venture capital firms, whether venture capital investment is right for your company, and if so, when, and how, you start pitching.
So far we have provided you with an overview of what you need to know about VCs and ask whether you really need venture capital investment. This week we explore Private Equity, how it differs from Venture Capital and what you’ll need to know if you’re seeking Private Equity investment.
What is the difference between Venture Capital and Private Equity? And how can you tap into their funds? It’s important to know what funds are on offer, and how they finance startups, because no matter what stage you’re at now, your trajectory may propel you towards seeking funds from one of these firms in the future.
And knowing which fits your stage and strategy will help get you towards the next step, or your exit.
What is Private Equity?
To put it simply, Private Equity firms buy equity (shares) of private companies (or public companies with the aim of privatising them by delisting from the stock exchange) using money from high net worth individuals and firms who employ them to invest on their behalf.
Private Equity firms invest in more mature companies that have already established themselves – they often invest in businesses that are stagnating or slipping because of inefficiencies or management issues which PE firms look to rectify to turn a profit.
The risks are lower, and therefore the returns less, but that suits who they invest for better, and as they are usually majority or full owners, will still be seeing success.
Seeking Private Equity investment is usually where you’d look to support in your exit as you’d be giving up most or all of your business in a buyout.
What is Venture Capital?
As we covered in What you need to know about Venture Capital, a VC is a private equity investor that invests other people’s money in companies that have high growth potential in exchange for an equity stake. VCs are risk takers investing in high risk opportunities that have the potential of huge returns
VCs still invest private funds so are technically a subset of PE, but invest in earlier stage on growing startups that have huge potential for growth rather than being already established.
Due to the risk involved at the stages they invest, VCs often look to take smaller percentages of a startup in comparison to PE, so they can hedge their bets on more companies to limit the risk for loss.
VCs are shorter term investments and will be looking for a return more quickly which means they will push founders to deliver.
Interestingly, Private Equity firms can use both cash and debt in their investment, whereas Venture Capital firms deal with equity only.
It’s unlikely if you’re using Decksender you’ll be looking for Private Equity investment right now, but they could be part of your longer term strategy if you’re set to sell up and embark on your next entrepreneurial adventure!
As with every level of fundraising, it starts with a killer pitch deck! Decksender can help you nail this and get it out to potential investors waiting to hear your ideas