Choosing Between Private Equity and Venture Capital Careers

a man trying to choose between private equity and a venture capital career

Private equity and venture capital firms are among the firms that showed resilience and survived amid the pandemic. Private equity and venture capital investments gathered pace in February this year. Healthcare and pharma witnessed the most deals while technology and digital segments had the second-highest number of deals.

The industrial sectors like healthcare, pharma, technology, digital, consumer, retail, and BFSI accounted for 78 percent of the deal volume, reports economic times. Venture capital investments in B2B Ed-Tech start-ups have grown to USD 30 million in 2020, up from USD 17 million last year. Further, PE/VC investments in October 2020 recorded USD 8.4 billion as against USD 3.2 billion in October 2019, up by 163 percent.

Take a look at the February 2021 fact sheet here.

Source: Economic Times

Interesting development, isn’t it?

For those who are confused about private equity or venture capital career, here is basic information about the private equity and venture capital industries that has stood strong amid the pandemic.

What are PE and VC firms?

Private Equity Firms:

PE firms are actively involved in buying companies facing downswing, then increasing the operational efficiency and selling them for profits. They use cash and debt and may invest around USD100 million in the companies they buy.

Some of the top private equity firms include:

  • Kohlberg Kravis Roberts
  • The Carlyle Group
  • The Blackstone Group
  • Audax Group

VC Firms:

VC firms are actively involved in investing money for start-ups or other companies in need of money. They may invest about USD 5 million or higher. VCs restrict their investments to industries like biotech, technology, and clean technology. They invest and share revenue or sell the stake and use only equity while buying.

Some of the top VC firms include:

  • Accel
  • Benchmark
  • Sequoia Capital
  • Madrona Venture Group

Key differences between private equity and venture capital

Private equity deal structure is entirely different from that of venture capital. PE firms buy mature companies that may be deteriorating or failing to make profits, streamline their operations and increase revenue. On the other hand, VC firms tend to invest in startups showing high growth potential.

PE firms buy 100 percent ownership, while VC firms invest in 50% or less of the equity. Here is a compiled table of differences in principles of both these industries.

Differences in risk appetite and returns

As venture capitalists invest in start-ups, the chances are little to gain 100 percent shots. However, one investment may generate huge returns that make the entire fund profitable. Also, they invest small amounts of money.

On the contrary, in PE, the number of investments is smaller, but the investment amount is much larger. So, a failure would doom the industry. Therefore, they take gentle steps by investing in mature companies where the risk appetite in the near future is zero percent.

In actuals, though they claim for higher returns, the returns are lower than they claim. VCs generate 20% of returns while PEs generate returns up to 10%.

Work culture and Pay: VC vs PE firms

Professionals in the PE industry generally come from pure finance backgrounds. In the case of VC firms, the technologists might have turned as financers. The work hours are longer in PE firms as compared to the VC, where they have a normal workweek.

Career path for Venture Capital Associate

Career path for Private Equity Associate

The average Venture Capitalist salary in the US is USD 190265. The range typically falls between USD 139,427 and USD 231,448. Likewise, the average PE Investment Specialist salary in the US is USD 102,957, while the typical salary range falls between USD 85,769 and USD 129,690.

Exit opportunities: VC and PE

PE Exit opportunities

Several PE professionals move to hedge funds, venture capital firms, join a corporate or portfolio company in a senior position, or launch their own funds, take up advisory roles, or entrepreneurship.

VC Exit opportunities

VC professionals generally move to IPO, mergers and acquisitions, shares buyback, or work as strategic investors.

To conclude…

Both the firms have their unique features and duties. Choosing one among these two depends more on your inclination and interest. If you would like to make money in a short time and work in transaction deals, then a PE job might suit you. On the other hand, if you want to start a company of your own, then a VC job will definitely suit you.

I hope this introduction to both VC and PE firms helps you to gain a better perspective of both the industries and help to choose a career path.

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Choosing Between Private Equity and Venture Capital Careers was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

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