At first glance, private equity and venture capital look more or less the same: firms with lots of money investing in privately-held businesses and hoping to land big returns.
But every so often, our articles include mentions about private equity firms (e.g. TPG, Vista Equity Partners) and hedge funds (Tiger Global Management has been investing a lot in tech) when they invest in startups.
Private equity firms, on the other hand, focus on more established businesses that need a capital boost and reorganization so that they can be sold at a profit.
A private equity firm will buy a stake in an established company (usually a much bigger stake than a VC firm would), restructure and revamp the business so that makes more money and then sell it at a profit (e.g. through an IPO).
Private equity is seen as less risky than venture capital, because private equity investors are investing in a company that’s already established some business fundamentals—not two founders with a laptop and a dream.
Ping Identity is a good example of a company that has a history with venture capital and private equity.
Ping started off as a venture-backed company, raising its $5.8 million Series A from General Catalyst in 2004.
The company was acquired by private equity firm Vista Equity Partners for $600 million in 2016.
Postmates, for example, received a $225 million investment from private equity firm GPI Capital in September.
The company was already well-established, having raised money from venture capital firms like Spark Capital and Founders Fund.