Growth Equity vs Venture Capital – What’s the Difference?

Private equity is used to broadly group funds and funding companies that present capital on a negotiated foundation typically to private companies and primarily in the form of equity (i.e. stock). This class of firms is a superset that features enterprise capital, buyout-also called leveraged buyout (LBO)-mezzanine, and growth equity or growth funds. The industry expertise, amount invested, transaction construction preference, and return expectations fluctuate in response to the mission of each.

Venture capital is likely one of the most misused financing phrases, attempting to lump many perceived private investors into one category. In reality, only a few corporations obtain funding from venture capitalists-not because they aren’t good companies, however primarily because they do not fit the funding model and objectives. One venture capitalist commented that his firm acquired hundreds of enterprise plans a month, reviewed only a few of them, and invested in perhaps one-and this was a large fund; this ratio of plan acceptance to plans submitted is common. Enterprise Physician Capital is primarily invested in younger companies with significant growth potential. Industry focus is normally in expertise or life sciences, although massive investments have been made lately in certain types of service companies. Most enterprise investments fall into one of many following segments:

· Biotechnology

· Business Merchandise and Providers

· Computers and Peripherals

· Shopper Products and Services

· Electronics/Instrumentation

· Monetary Providers

· Healthcare Services

· Industrial/Energy

· IT Providers

· Media and Leisure

· Medical Units and Equipment

· Networking and Tools

· Retailing/Distribution

· Semiconductors

· Software

· Telecommunications

As venture capital funds have grown in size, the amount of capital to be deployed per deal has elevated, driving their investments into later stages…and now overlapping investments more traditionally made by growth equity investors.

Like enterprise capital funds, development equity funds are typically limited companionships financed by institutional and high net value investors. Every are minority investors (at the very least in concept); though in reality both make their investments in a kind with terms and circumstances that give them efficient control of the portfolio firm regardless of the percentage owned. As a % of the total private equity universe, development equity funds represent a small portion of the population.

The primary difference between enterprise capital and development equity investors is their danger profile and investment strategy. Not like venture capital fund strategies, growth equity buyers don’t plan on portfolio firms to fail, so their return expectations per firm can be more measured. Enterprise funds plan on failed investments and must off-set their losses with important positive aspects in their different investments. A results of this strategy, venture capitalists need every portfolio company to have the potential for an enterprise exit valuation of no less than a number of hundred million dollars if the corporate succeeds. This return criterion considerably limits the businesses that make it by way of the chance filter of venture capital funds.

One other significant distinction between progress equity buyers and venture capitalist is that they are going to spend money on more traditional trade sectors like manufacturing, distribution and enterprise services. Lastly, development equity buyers could consider transactions enabling some capital for use to fund accomplice buyouts or some liquidity for existing shareholders; this is sort of never the case with traditional venture capital.