Tyler Tysdal on the Key Differences Between Private Equity Venture Capital

Tyler Tysdal is an investment expert who has spent his career working in a huge array of positions in this field. Tyler has been an investor, a fund manager, as well as a contributing investment analyst. Tyler was kind enough to have a chat with us about some of the myths surrounding investments, specifically business investments. One common myth which people fall for is thinking that venture capital and private equity are the same thing. It is very easy to see why this mistake happens, both are investment vehicles and both are types of business investments, but there are some stark contrasts between the two which we are going to look into today.

Breaking Each Down

The real difference between these two types of investment is the type of companies which are invested in by the vehicle. In the case of private equity these investments which are made into companies which are not listed on any stock exchange, these are usually established businesses. In contrast venture capital is a term which is used to refer an investment into smaller companies and start-ups.

Stage of Investment

As mentioned the private equity investment is made into established businesses which is why this type of investment comes at a later stage in the life of the business. In terms of venture capital investments these are made at an early stage, normally when the business is trying to get itself off the ground.

Industry Types

Whilst private equity investments can be made into any industry those investments of venture capital are normally focused on rapid growth industries. This is not a hard and fast rule but these types of investments work best when they are with companies in industries such as tech, chemicals, energy and conservation, where the investor can see a stronger return on their initial investment.

Ownership Levels

Venture capital ownership levels are very rarely more than 49%, giving the business owner the largest stake. In terms of private equity however the ownership level will be far more sizable, with most seeking a 100% stake for their investment.

Risk Levels

Venture capital investments bring with them a much higher risk than that of private equity. The reason for this is that with younger and less established businesses there is far more scope for things to go wrong, whereas a private equity investment is of course for a business which already has a history and is well established. The reason why those take on this higher level of risk when investing in venture capital businesses is that the investor can directly help to impact opportunities for the young business and help them to grow using the experience which they have. The idea is that if they believe in a business like a startup then they will look to help it as best as they can, both with cash and expertise.