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The question of private equity or venture capital is one that we often find companies ask. Technically, venture capital is in fact private equity just at a different stage of a company's life cycle.
Venture capital is the route that has more risk for an investor. The companies invested in are typically startups/pre-revenue but have "massive" growth potential. Private equity works with companies who are farther ahead in their life cycles. With revenue, financial analysis available, testimonials as support, and initial growth strategies organized, there is less risk to this type of investment. Naturally the ROI does not have the same "massive" growth potential due to venture capital's missing core elements such as an outside firm's creative control over a new project or its lack of a controlling equity share.
Which is the better option?
Venture capital and private equity operate in two mutually exclusive situations. This is why one is not better than the other.
Traditionally private equity firms acquire companies that are experiencing poor financial management/business management. Their goal is to reorganize management, debt, and business strategy for future gain.
Venture capital firms have the opportunity to nurture and guide a startup to eliminate growing pains. This expertise benefits both parties through strategic control and a clear direction for a business. The startup's founding team is not reorganized, although cash flow management might be reassessed.
Recognizing each of these situations, this does not mean that both can only operate on these terms. Companies do not always need strategic support for growth nor must they be experiencing financial struggle to be acquired by a private equity firm. Currently, Company Finder has been working with companies looking for bridge funding through our private equity and debt financing relationships. Bridge funding is short-term intermediate financing for a company until they can secure long-term funding. This tool allows companies to remain private, secure funding privately, and can continue operations until private equity firms take greater interest later in the company's life cycle.
If your company is interested in venture capital or private equity funding, get in touch with us with this link!
Written by:
Angus Burke,
CEO