Private Equity LBO's Vs. Venture capitalists : Fundamentals

  • Private equity firms will focus on turnarounds by buying distressed debt, file for protection from creditors under insolvency law, and lead a restructuring. Venture capitalists will historically invest in seed stage fundamentally strong businesses.
  • PE's will change the existing management and hire either a consulting firm or their own team to act as top management in the interim. On the other hand, VC's obviously believe in the entrepreneurs whom they funded and hence they dont alter with the operating management but they generally sit on the boards of such firms.
  • For the PE, an exit will generally mean appointing a permanent top management and either sell it completely or partially to achieve a target of anywhere from 15 to 80 percent returns. For the VC, an exit generally means taking the firm to a successful IPO and venture out with similar returns.

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