Private Equity and Venture Capital
The need to capture new capital resources outside the financial system is a reality for many companies, either for those who have credit limitation or for those who need to improve their capital structure. Both new ventures that are registering growth and already consolidated companies need, to enable their growth, alternative ways to invest in their business models. In this context, private equity and venture capital models present themselves as alternatives to entrepreneurs.
Objectively, from a point of view of the companies invested, we can differentiate the Private Equity from Venture Capital by the maturity of the enterprises. While the first applies to investments in established and mature companies, the second is more dedicated to emerging startups and businesses. In both cases, funds (both of PE and VC) usually deliver to the companies invested not only financial resources, but also contribute know-how and governance structures, aiming at the end of the day a sale of the invested company with the appreciation of contributed capital. In the case of Venture Capital, it is more usual that investment funds participate more actively in the administration and, of course, in decision making.
Other noticeable differences between the two investment methods are:
• Company Phase: While Private Equity is focused on more mature and solid cash -based companies, Venture Capital is generally directed to startups and emerging companies;
• Operating sector: Usually private equity operations are performed in the most solid sectors of the economy, such as energy, infrastructure, health, education, etc.; while capital venture funds have turned more to the niche of technology and innovation;
• Risk factor: Like any capital investment, both models have risk potentials, which are mitigated by mechanisms provided for in investment contracts and agreements celebrated with entrepreneurs, always preceded by the realization of previous audits.
The Zugno and Peña team is available to assist in all stages of this process.