Check the definitions of both venture capital (VC), and private equity (PE), as for this post i will only focus on the difference.
These two investment entities are very similar, they both get money from rich investors and invest that money in none listed or traded companies.
The main differences between private equity and venture capital:
1- Types of companies they invest in.
Venture capital invest in startups, or young companies in need of growth capital. Most of VC investment are in the tech sector. VCs are limited to technology, biotechnology and green energy companies.
Private equity invest in mature companies, companies that are established, in any industry.
The difference is, a startup can fail and thus the entire investment could be lost, while the mature companies are far less likely to disappear overnight.
As Joan Solotar, Global Head of Private Wealth Solutions at Blackstone, describes it, for VCs it is binary (win-lose), for private equity even when you lose should be protected on the downside.
we have not been venture investors in the way that you’re thinking about in part because the outcomes are binary. And when we’re making an investment, we always try to think about protecting on the downside, and that’s quite difficult to do in a venture deal.
2- Types of investments they do.
Venture capital give money in exchange of equity, usually under 50% of the total equity. Private equity also play the role the VCs do but usually when it comes to big companies (not startups). PE mostly engage in company buyouts, acquiring the company and it’s assets 100%. PE are known for Leveraged Buyouts (LBOs), where the PE buys the firm through debt which is collateralized by the target’s operations and assets.
3- Size of each investment.
VCs invest $10 million or less per startup. Only as equity.
PE invest $100 million and above per company. Use cash and debt in their investment.