private equity

Money invested in firms which have not 'gone public' and therefore are not listed on any stock exchange. Private equity is highly illiquid because sellers of private stocks (called private securities) must first locate willing buyers. Investors in private equity are generally compensated when: (1) the firm goes public, (2) it is sold or merges with another firm, or (3) it is recapitalized.

Private Equity vs. Venture Capital

Although they're both types of investors, there is a world of difference between private equity and venture capital. As a rule of thumb, private equity businesses invest in existing businesses which are not profitable, then make them turn a profit. Venture capitalists take bets on new companies, and buy in for a set amount of money hoping to see their investments grow.

Private Equity

Private equity investors are all about streamlining a current business in order to make it profitable. They typically buy out the business in its entirety, in order to have the freedom they need to restructure it. Private equity firms will then do everything in their power to turn the business around, often bringing in new management and changing methods to become more profitable.

Venture Capital

Venture capitalists make their money by finding good deals in young businesses. They offer to invest a set amount of money for a stake in the company. Venture capitalists may be very hands-off, or they may want a say in how the company is run. Typically they look for promising young businesses that need an injection of cash in order to grow. Venture capitalists may own a portion of a business, but compared to private equity firms they rarely buy a company outright.