Knowledge Hub
for Growth

Private equity vs venture capital: what’s the difference?

If you’re a business looking for funding to scale and grow, you may be confused by the options and the terminology. Take private equity and venture capital for example. While both types of finance are provided by investors in return for shares, there are major differences between them.

Private equity (PE) and venture capital (VC) investors provide different amounts of finance, look for different types of companies in which to invest, and typically take different percentage levels of shares in the target. PE targets will be private, non-listed companies, and VC companies will be start-up or early-stage businesses with high potential.

In this article, we look at these differences and make suggestions as to where you might go to secure either PE or VC funding. 

What is private equity investment?

Private equity (PE) is a term used to describe finance given to a company in return for its shares. Typical investors are high net-worth individuals (sometimes called angel investors), private equity firms and institutional investors like pension funds.

Although some private equity investments involve buying a business outright, more typically PE investors take an equity stake. PE investors usually look for fast-growing, well-established, unlisted businesses, and they tend to invest for the long term – think four to seven years. At this point, they will seek to exit the business by selling their stake and hope to make a substantial profit.

PE is often used to assist management buy-outs or management takeovers, and the private equity investor will work closely with the business’s leadership team to help run and develop the business.

If you want to retain complete control of your operation, you may find the involvement of a private equity firm stifling. However, if you’re keen to harness the skills of expert advisors who can help you make efficiency savings, enhance your supply chain and boost sales, you may find the input of a private equity investor invaluable.

What is venture capital investment?

VC is a branch of private equity investment, specifically aimed at start-ups and innovative, small businesses with fantastic potential to grow and scale.

VC investors include single angel investors and institutions. Although businesses from all sectors attract venture capital investment, the preferred sectors are emerging and innovative such as tech. VC investors are on the lookout for high-potential companies that promise a rapid rate of growth and large returns. They may offer expertise alongside funding and are prepared to accept a higher degree of risk.

Just as with traditional private equity investment, you will need to give up a degree of control over your business in return for finance and advice. The venture capitalist will aim to exit your business after four to six years.

If your company is relatively new (less than two year’s old), VC might be a good choice for you, particularly if you’ve no other potential sources of funding such as bank loans.

Private equity vs venture capital

Private equity  Venture capital
PE investors look for mature companies VC firms invest in early-stage and start-up companies with the potential for high growth  
Target companies may be strugglingTarget companies are relatively new but show promise  
PE investors may buy all or a large percentage of the target’s sharesVCs may invest in many businesses to spread their risk  
PE investors may buy a company to turn it around and sell at a profitVC investors are looking to help a company scale and grow so that they can turn a profit when they sell  
PE investors expect to be heavily involved in a fewer number of businessesVC investors will offer advice but the degree of their involvement will differ  
Large amount of funding compared to VC investment  Smaller funding compared to PE
PE investors will invest in all sectorsVC investors target new and emerging sectors

How to secure private equity or venture capital backing

Before you start looking for private equity or venture capital investment, you’ll need to make sure your business is attractive to investors.

For this, you’ll need a sound grip on your finances, a solid business plan and the perfect pitch. Without these, you’re unlikely to secure investment.

When you’re confident that you’re ready to face investors, you need to seek them out. Your local business network is a good place to start.

These websites are also good: 

  • The Angel Investment Network has over 250,000 angel investors looking to invest different sums of money all ready to hear your pitch, and you can pitch to them online
  • Pitchbook provides data on the private equity and venture capital market in the UK and worldwide

When your business is ready for funding, our team of corporate solicitors is ready to advise you on where to look, how to choose between PE and VC investment, and also consider other alternatives such as crowdfunding. We’ll help you prepare all the necessary documents such as term sheets, and share cap tables.

What next?

Whether you’re an entrepreneur or investor looking for support with the entire funding process, our specialist corporate solicitors can help. Call us on 0800 689 1700, email us at, or fill out the short form below with your enquiry.

Your data will only be used by Harper James Solicitors. We will never sell your data and promise to keep it secure. You can find further information in our Privacy Policy.

Our offices

A national law firm

A national law firm

Our commercial lawyers are based in or close to major cities across the UK, providing expert legal advice to clients both locally and nationally.

We mainly work remotely, so we can work with you wherever you are. But we can arrange face-to-face meeting at our offices or a location of your choosing.

Head Office

Floor 5, Cavendish House, 39-41 Waterloo Street, Birmingham, B2 5PP
Regional Spaces

Stirling House, Cambridge Innovation Park, Denny End Road, Waterbeach, Cambridge, CB25 9QE
13th Floor, Piccadilly Plaza, Manchester, M1 4BT
10 Fitzroy Square, London, W1T 5HP
Harwell Innovation Centre, 173 Curie Avenue, Harwell, Oxfordshire, OX11 0QG
1st Floor, Dearing House, 1 Young St, Sheffield, S1 4UP
White Building Studios, 1-4 Cumberland Place, Southampton, SO15 2NP
A national law firm

Like what you’re reading?

Get new articles delivered to your inbox

Join 8,153 entrepreneurs reading our latest news, guides and insights.


To access legal support from just £145 per hour arrange your no-obligation initial consultation to discuss your business requirements.

Make an enquiry