Growth equity and venture capital - what is the difference?

Private equity is used to broadly group funds and investment companies, which typically provide funding to private companies on a negotiated basis, primarily in the form of equity [ie, stocks]. Such companies are a superset, including venture capital, buyouts - also known as leveraged buyouts [LBOs] - mezzanine, and growth equity or expansion funds. Industry expertise, investment amounts, trading structure preferences and return expectations vary according to each individual's mission.

Venture capital is one of the most abused financing terms, trying to group many perceived private investors into one category. In fact, very few companies get money from venture capitalists – not because they are not good companies, but because they don't fit the funding model and goals. A venture capitalist commented that his company receives hundreds of business plans each month, only reviewing some of them, and investing only one copy - this is a huge fund; the ratio of planned acceptance and submission is very common . Venture capital invests primarily in young companies with significant growth potential. Although a large amount of investment has been made in certain types of service companies in recent years, the industry is usually concerned with technology or life sciences. Most venture capital falls into one of the following sections:

·Biotechnology

·Commercial products and services

·Computers and peripherals

·Consumer goods and services

·Electronic / Instrumentation

· Financial Services

·Health care services

·Industrial / Energy

·IT service

·Media and entertainment

·Medical devices and equipment

·Networks and devices

·Retail / Distribution

·semiconductor

·software

·telecommunications

As the scale of venture capital funds continues to expand, the amount of capital per transaction increases, driving investment into the late stage... Now the investment overlaps, traditionally carried out by growth equity investors.

Like venture capital funds, growth equity funds are usually limited partnerships funded by institutions and high net worth investors. Everyone is a minority investor [at least conceptually]; although in reality both invest in a terms and conditions that allow them to effectively control the portfolio company, regardless of the percentage of ownership. As a percentage of total private equity, growth equity funds account for a small portion of the population.

The main difference between venture capital and growth equity investors is their risk profile and investment strategy. Unlike venture capital fund strategies, growth equity investors do not plan for portfolio company failures, so they can more accurately measure their return expectations for each company. The venture fund plans to fail to invest and must offset the loss through significant gains from other investments. The result of this strategy is that if the company succeeds, venture capitalists need each portfolio company to have at least a few hundred million dollars of the company's potential to exit the valuation. This return standard significantly limits the companies that achieve this goal through the opportunity filter of venture capital funds.

Another significant difference between growth equity investors and venture capitalists is that they will invest in more traditional industry sectors such as manufacturing, distribution and business services. Finally, growth equity investors may consider trading, allowing some funds to be used to fund partner acquisitions or to provide some liquidity to existing shareholders; traditional venture capital is almost never the case.

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