• Think of a square versus a rectangle: VC is a form of PE, but not all PE is a form of VC. VC is a square within the PE rectangle.

  • PE is a blanket term describing investment firms that purchase stock, or “equity,” of companies on behalf of institutional investors, such as university endowments, who provide the PE firms with the initial capital

  • The goal of all PE firms, including VCs, is to provide a “return on investment” (ROI), so that both the institutional investors and the PE firm make money from initial investments off the PE firm’s investment strategy

  • Whereas some PE firms invest in late-stage companies or take-private publicly traded, VC exclusively invests in the stock of private, early stage companies with potential for rapid growth

  • Whereas PE involves many types of transactions, VCs generally only get a ROI when one of their private companies goes public on stock exchanges through an IPO (initial public offering) or M&A transaction (mergers and acquisitions), usually within 5-10 years of company foundation

  • Because the US Securities and Exchange restricts most Americans from investing in private companies – not listed on stock exchanges, VC provides access to otherwise untapped investment opportunities

  • After raising a “fund” from various LPs/institutional investors (see below), VCs invest in a series of Portfolio Companies/PortCos through an investment strategy

  • VC strategy is a ‘secret sauce’ marketed to LPs/ institutional investors–usually a combination of market research/economic data, (often nepotistic) networks of internal referrals and recommendations, and a less-scientific “savvy” they advertise as enabling them to identify untapped business ventures with high profit margins

  • In VC financing deals, a single VC or groups of VCs pool money into an emerging company that lacks market-ready product and/or substantive revenue, the first called a “Series Seed” or “Series A” financing, then Series B thereafter, and so on

  • After several series of financings ending anywhere between Series C to F, VCs generally guide their private PortCos to an Exit (see below) that provides an ROI to both the VC and its LPs