Colorado businesses that are looking for funding may think that private equity and venture capital firms are the same thing. While they may have many similarities, there are also key differences between the two that business owners need to know about. For instance, private equity firms tend to invest in companies that have a track record of success. They typically pour money into businesses that need help reaching profitability so that they can be sold.
Meanwhile, venture capital firms tend to invest in companies that have yet to reach their full potential. Generally speaking, venture capitalists prioritize growth over sustainability, which may or may not be in the best interests of a given organization. The goal of a venture capital firm is to invest in as many companies as possible with the hopes that one or two will become successful.
Private equity firms will generally steer companies toward an initial public offering. After purchasing a stake in a stable business, such a firm will likely seek to make changes to the management structure to maximize the chances of making it profitable. It is important to note that some private equity firms act like venture capital firms. For instance, Postmates received investments from both venture capitalists and private equity firms. It is thought that the line between the two will continue to blur over time.
Companies that are looking for a source of funding may have many options to choose from. For instance, it may be possible to partner with a venture capital firm or obtain a loan from a family member. Those who are seeking financing may want to discuss potential deals with an attorney. This may help business owners better understand the terms of the transaction and whether it makes sense for their organizations.
