Venture capital and Private Equity

Venture capital and Private Equity

Subject – Economy

Context – While investments into Indian start-ups by private equity and venture capital funds have hit an all-time high, the ticket size of the deals has also gone up significantly in the first eight months of 2021.

Concept –

• Venture capital and private equity are two types of financial assistance that are used by companies in different stages.
• Private Equity is a large investment in developed companies and venture capital is a small investment usually made in initial stages of development of a company.
• Private equity funds refer to investments made by investors for investment purposes.
• Whereas, venture capital refers to funding to those ventures that are backed by new entrepreneurs, have high risks, and who require money to shape their ideas.

Venture Capital

• Venture capital is referred to funds invested by individuals or investors to start-ups or small companies aspiring to establish a fresh concept and new entrepreneur. All those new private companies who cannot raise their funds from the public sector may raise funds from the venture capital.
• This type of investment indicates high risk but is supported by fresh and top qualified entrepreneurs. Venture Capital firms assist developing businesses in their initial stages before making it public.
• It is a popular funding process and sometimes required to raise money for bank loans, capital markets, or other debt instruments. This type of investor is known as a Venture Capitalist, and the capital they provide is called equity capital.

Private Equity

• Private equity can be defined as the capital investment, which is made by companies or investors in the private firms that are not a part of the stock exchange. These fund investments are made by the high-net-worth firms or individuals. These investors acquire private companies shares or earn authority of public companies to take them private and de-list from public stock exchanges.
• Private Equity firms purchase an existing company and help them to develop and expand.
• This entity has become an essential part of the financial services and is one of the attractive funding options.