Venture Capital vs Private Equity: Key Differences Explained

As you look to expand your portfolio beyond traditional stocks and bonds, Venture Capital (VC) and Private Equity (PE) are likely two of the first terms you’ve come across. Both of these investment strategies focus on businesses, but they operate in very different ways.

For new investors, the differences between VC and PE can be confusing. How do they work? Which one carries more risk? And most importantly, how can you invest in them without needing millions in capital?

In this guide, we’ll break down the key differences between venture capital and private equity, explain their potential benefits and risks, and show how platforms like Splint Invest can make alternative assets more accessible to everyday investors.

What Is Venture Capital?

Let’s start with venture capital. VC is all about investing in early-stage companies with high growth potential. These are often startups in sectors like technology, biotech, or fintech with innovative ideas but lack the funding to scale.

💡 How VC investments work: VC firms or individual investors (venture capitalists) provide funding in exchange for a minority stake in the company. The investment is high-risk, as many startups fail, but the potential returns can be enormous if the company succeeds. VC investors typically look for companies that can rapidly scale and eventually go public (IPO) or be acquired by a larger company.

What Is Private Equity?

Private equity (PE) is a broader investment strategy that focuses on buying and improving established businesses. Unlike VC, which targets startups, PE investors look for mature companies that need restructuring, expansion, or new management to increase their value.

💡 How PE investments work: PE firms buy majority or full ownership stakes in companies, often taking them private. The goal is to improve operations, cut inefficiencies, and boost profitability before selling the business at a higher valuation. These investments tend to be less risky than VC since the companies already have a track record, but they still require strategic changes to maximise returns.

Similarities Between Venture Capital and Private Equity

Despite their differences, which we’ll explore in a minute, venture capital and private equity VC and PE investments also share some common traits, including:

✅ Both focus on high-potential companies – whether it’s a startup or a struggling but established company, the goal is to increase value.

✅ Both require long-term investment horizons – they’re not quick-flip investments; patience is key.

✅ Both aim for high returns – the end goal is to exit the investment at a much higher valuation.

✅ Both are traditionally exclusive – both come with high entry barriers, making them less accessible than, for example, alternative investment funds available through Splint Invest.

7 Key Differences Between Venture Capital and Private Equity

Here’s a quick overview of the PE and VC differences, followed by a more detailed dive:

Factor	Venture Capital	Private Equity
Investment Stage	Early-stage startups	Established businesses
Company Type	High-risk, high-reward	Profitable or turnaround companies
Ownership Stake	Minority stake	Majority or full control
Risk Level	Higher	Lower (but still significant)
Investment Horizon	5–10 years	3–7 years
Exit Strategy	IPO, acquisition	Resale, IPO, restructuring
Involvement Level	Advisory, strategic support	Hands-on operational changes

#1 Investment Stage

The first key difference between venture capital and private equity is the stage at which you invest in a company:

Venture capital focuses on startups that often have innovative ideas but lack the capital to scale. These businesses may not be very profitable at the moment but they show high growth potential in emerging markets—typically technology, biotech, and fintech.

Private equity, on the other hand, targets established businesses with a proven business model. These companies may be looking to expand, restructure, or improve profitability, making them more stable investments than startups.

#2 Company Type

The type of company that VC and PE investors look for is also different:

VC investors are usually more comfortable taking risks on businesses that have yet to turn a profit. The goal is to back the next big disruptor—think of companies like Uber, Airbnb, or Spotify, which started as small startups before becoming industry leaders. However, many startups fail, making VC a high-risk, high-reward investment.

PE investors, in contrast, look for profitable firms or those that show the potential for a turnaround. These businesses may be underperforming due to operational inefficiencies or poor management, and PE firms step in to turn things around. 

#3 Ownership Stake

The ownership structure is another major distinction:

VC investors usually take a minority stake (often between 10–30%). This allows the startup’s founders to retain control and benefit from investor funding and expertise.

PE firms typically acquire a majority or full stake (often over 50%) in a company. This means they take control of decision-making and actively drive changes to improve performance. Their hands-on approach is key to maximising profitability before selling the company at a higher valuation.

#4 Risk Level

Investing in businesses always carries risks, but VC and PE differ in their risk-to-reward balance:

Venture capital carries a higher level of risk because startups often fail before they ever reach profitability. However, the rewards can be extraordinary if an investment succeeds—early backers of companies like Tesla or Facebook made fortunes. 

Private equity is generally considered less risky because investments are made in companies with a track record of success. That said, turning around an underperforming business is still a challenge, and poor management decisions can lead to financial losses.

#5 Investment Horizon

How long investors hold onto their investments varies between VC and PE:

Venture capital investments typically require a longer time horizon (5–10 years) before investors see returns. Startups need time to develop products, gain market traction, and eventually reach an exit point (such as an IPO or acquisition).

Private equity investments usually have a shorter holding period (3–7 years). PE firms work to quickly improve a company’s operations and increase its value before selling it for a profit. This means PE investors may see returns faster than their VC counterparts.

#6 Exit Strategy

Naturally, both VC and PE investors aim to exit their investments at a profit, but they use different strategies:

VC firms generally aim for exits through Initial Public Offerings (IPOs) or acquisitions. A successful IPO (like Facebook or Google) allows early investors to cash out at a much higher valuation. Acquisitions—where a larger company buys the startup—are also common.

Private equity firms focus on restructuring companies and selling them at a higher valuation. There are several to do this:

• sell the company to another investor or PE firm,
• take the company public through an IPO,
• or merge it with another business to create a more valuable entity.

#7 Involvement Level

The role that investors play in company operations is another big difference between venture capital and private equity:

Venture capital investors act as mentors and strategic advisors. They don’t typically get involved in day-to-day operations but instead provide guidance, industry connections, and funding to help startups grow.

PE firms take an active, hands-on approach. Since they often hold a controlling stake, they directly influence management decisions like hiring new executives, cutting costs, expanding into new markets, and restructuring operations to boost profitability.

Which Investment Strategy Is Right for You?

So, based on all we’ve covered, which one should you choose? Venture capital or private equity? If you’re still not sure, think about your investment style, risk appetite, and goals:

Venture Capital Might Be Right If: ✔️ You’re willing to take on higher risks for the potential of massive returns. ✔️ You have a long investment horizon (5–10 years). ✔️ You’re excited about disruptive startups and emerging industries. ✔️ You can diversify across multiple startups to spread risk.

Private Equity Might Be Right If: ✔️ You prefer investing in established businesses rather than startups. ✔️ You want a more structured investment with a defined strategy for improving a company. ✔️ You prefer medium-term returns (3–7 years). ✔️ You’re comfortable with a hands-on management approach.

Splint Invest: A Better Alternative?

While venture capital and private equity are the most popular alternative assets, they aren’t the only options for investors looking to diversify. 

Traditionally, high-net-worth individuals and institutional investors have dominated alternative investments. Still, new opportunities are opening up for retail investors. Platforms like our very own Splint Invest provide access to a wide range of alternative assets, such as fine wine, luxury cars, trading cards, or rare LEGO sets, through carefully established investment funds. 

By investing in those, retail investors can diversify beyond stocks and bonds without taking on the extreme risks associated with startup investing.

Want to explore alternative investments beyond traditional finance? Explore Splint Invest today and create your free investment account today!