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

Physician Private Equity equity is used to broadly group funds and funding firms that present capital on a negotiated basis generally to private businesses and primarily in the type of equity (i.e. stock). This class of companies is a superset that includes venture capital, buyout-additionally called leveraged buyout (LBO)-mezzanine, and progress equity or growth funds. The trade experience, amount invested, transaction structure preference, and return expectations differ according to the mission of each.

Enterprise capital is likely one of the most misused financing phrases, trying to lump many perceived private buyers into one category. In reality, very few corporations receive funding from venture capitalists-not because they are not good firms, however primarily because they do not match the funding model and objectives. One enterprise capitalist commented that his agency obtained hundreds of business plans a month, reviewed just a few of them, and invested in maybe one-and this was a big fund; this ratio of plan acceptance to plans submitted is common. Enterprise capital is primarily invested in young firms with important growth potential. Business focus is often in technology or life sciences, though massive investments have been made in recent years in certain types of service companies. Most enterprise investments fall into one of many following segments:

· Biotechnology

· Enterprise Products and Companies

· Computers and Peripherals

· Consumer Products and Companies

· Electronics/Instrumentation

· Financial Companies

· Healthcare Companies

· Industrial/Energy

· IT Services

· Media and Entertainment

· Medical Devices and Tools

· Networking and Gear

· Retailing/Distribution

· Semiconductors

· Software

· Telecommunications

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

Like venture capital funds, growth equity funds are typically restricted partnerships financed by institutional and high net value investors. Each are minority traders (at least in concept); though in reality each make their investments in a form with phrases and circumstances that give them effective management of the portfolio firm regardless of the proportion owned. As a p.c of the total private equity universe, progress equity funds characterize a small portion of the population.

The main difference between venture capital and development equity traders is their threat profile and investment strategy. In contrast to venture capital fund strategies, growth equity investors do not plan on portfolio companies to fail, so their return expectations per firm will be more measured. Enterprise funds plan on failed investments and must off-set their losses with vital features of their different investments. A results of this strategy, venture capitalists want every portfolio firm to have the potential for an enterprise exit valuation of a minimum of several hundred million dollars if the corporate succeeds. This return criterion significantly limits the companies that make it through the chance filter of venture capital funds.

Another significant distinction between progress equity traders and venture capitalist is that they will invest in more traditional business sectors like manufacturing, distribution and enterprise services. Lastly, development equity traders may consider transactions enabling some capital for use to fund companion buyouts or some liquidity for current shareholders; this is almost never the case with traditional venture capital.