Feb 10 2007 by Jason

What Is The Difference Between "Venture Capital" and "Private Equity?"

Question: You guys talk about Private Equity (PE) and Venture Capital Funds (VC). What’s the difference?

Our Take: Well, you “caught us.” Technically, VC is a subset of PE. Private Equity deals are simply deals that aren’t available for public participation. This includes VC, angel investing, hedge funds, buy out funds, etc.

The definition of all of these terms is getting more blurry, as each of them has morphed a bit to play in each other’s sandbox. For instance, angel investors now compete with VCs on small, very early stage deals, while some of the buyout and hedge funds are doing larger VC-type deals.

Traditionally, the term “venture capital” was used to designate investments in early “start up” companies. These deals were generally regarded as too high-risk and too early in their life cycles to interest other PE players.

All of this being said, the term Private Equity has the connotation of meaning “everything but angel or VC.” When we’ve used PE in our posts, we have referred to bigger funds that do later stage deals, hedge and buyouts – the types of deals that traditional VCs do not do. I would expect, given our comfort with this nomenclature, we’ll continue this in the future.