Robert Wilkos : Private Equity vs. Venture Capital (Comparison)

Following are the differences between the two sources of finance.

What’s private equity?

Private equity is a type of investment made in not publicly traded companies. They are also known as “buyouts” or “leveraged buyouts.” Private equity funds typically invest in unlisted companies.

According to Robert Wilkos, private equity firms typically use a leveraged buyout to purchase these unlisted companies. This means that they borrow money from a bank and use the company’s assets as collateral for the loan. The private equity firm will then inject cash into the company to help it grow and pay back the debt through increased revenue.

Also, private equity companies mainly invest in small and medium-sized businesses with high growth potential. Robert Wilkos explains that they provide capital and management expertise, access to networks, and other benefits.

What’s venture capital?

Robert Wilkos says that venture capital is the financial investment in a business start-up that is typically high risk for the investor.

Venture capital, also known as VC, is funding that provides money to start-ups or other small businesses with high growth potential. Venture capitalists are investors who provide these funds in exchange for equity ownership of the company.

A venture capitalist (VC) invests in new and innovative companies, providing money and guidance to assist them during the early stages of development.

Private equity vs. Venture capital

As Robert Wilkos notes, venture capital is the money invested in a start-up by an investor. This investment does not come with voting rights and is given in exchange for equity. Private equity is when a company buys out another company’s shares to gain control of the company.

Private equity firms invest in companies that are established and have significant revenue. Venture capitalists invest in startups with high growth potential but still develop their business models.

Both venture capital and private equity firms invest in start-ups. However, venture capital firms are more focused on investing in companies with high growth potential.

Venture capitalists will provide funding for a company’s expansion or new product development if they believe it can grow and generate significant returns over time.

According to Robert Wilkos, private equity firms are more focused on investing in mature companies that need restructuring.

Pros and cons of private equity

The private equity investor may provide capital for the company to grow and expand or help them make changes to be as competitive as possible. However, it’s a form of financing typically used to acquire control of a company, either with debt or equity.

Pros and cons of venture Capital

The advantages of venture capital are that it is easy to access, provides funding for start-ups, and offers less risk than other forms of financing. Venture capitalists are also more likely to invest in new start-ups as they are interested in seeing their investments grow and succeed.

The disadvantages of venture capital are that it is expensive, there may be too much control from the investors, leading to conflicts with the founders. Robert Wilkos adds that there is little transparency into utilizing the funds.

Venture capital and private equity are excellent sources of finance for start-ups. Your industry, needs, and goals determine the type of funding for your emerging business.

Robert Wilkos is the Director, Co-Founder of a private equity firm, and a professional stockbroker.