Private Equity vs. Venture Capital: What's the Difference?

Private capital is reshaping global finance, with investors deploying trillions into companies that stay private longer or avoid public markets altogether. Two major engines behind this trend are Private Equity (PE) and Venture Capital (VC)—distinct investment models with different targets, strategies, and return profiles.

Private equity and venture capital are the two dominant engines powering private markets, yet they operate at different ends of the investment spectrum. In 2024, global VC funding rose to $368.3 billion from $349.4 billion in 2023, spread across tens of thousands of early-stage deals, while private equity committed fewer but significantly larger transactions—US $1.7 trillion globally, with deal sizes regularly exceeding US $100 million. 

In Southeast Asia, PE deal value surged to US $15.8 billion across just 67 deals, driven by infrastructure and digital economy investments.  VC activity, on the other hand, contracted sharply: total deal value in the region fell 41.7% YoY to US $4.56 billion, and deal count declined 10.3% to 633 deals. Funding levels reached just 54.6% of what was raised during 2020, reflecting a tougher capital environment and more selective investor appetite.

These differences in scale, structure, and timing define how capital is deployed, risks are managed, and value is created across both asset classes. SO, what exactly are Private Equity (PE) and Venture Capital (VC)?

What is Private Equity (PE)

Private Equity refers to capital invested in companies that are not publicly traded on a stock exchange. PE firms raise funds from institutional and accredited investors, such as pension funds, endowments, sovereign wealth funds, and high-net-worth individuals. They then use this capital to acquire or invest in private companies.

The defining characteristic of PE is its focus on mature, established businesses. Unlike public market investors who buy shares in existing, often liquid, companies, PE firms seek out private companies that may be undervalued, underperforming, or ripe for strategic transformation. 

Their primary goal is not just passive investment, but rather operational improvement, restructuring, and active value enhancement over a defined holding period. 

PE firms typically take significant, often controlling, stakes in their portfolio companies, allowing them to implement strategic changes, streamline operations, optimize financial structures (including using debt, as seen in Leveraged Buyouts), and ultimately prepare the company for a profitable exit.

What is Venture Capital (VC)

Venture Capital is a specialized subset of Private Equity. While also investing in private companies, VC firms focus exclusively on early-stage, high-growth potential companies.

These are typically startups and young businesses that have innovative technologies, disruptive business models, or the potential for rapid market expansion, but often lack significant revenue or profitability.

VC investment is inherently tied to the pursuit of rapid growth, innovation, and market penetration. VC firms provide the critical funding needed to fuel product development, build teams, scale operations, and capture market share in nascent or rapidly evolving industries. 

Due to the early stage of the companies they invest in, VC investments are characterized by higher risk (as many startups fail) but also the potential for exceptionally high returns if a portfolio company achieves massive success. 

VC firms typically take minority equity stakes, providing strategic guidance and leveraging their networks while relying heavily on the founding team's vision and execution.

Key differences between PE and VC

While Private Equity and Venture Capital are both forms of private market investing, they differ significantly in structure, strategy, and execution. These differences shape not only the type of companies they invest in, but also how value is created, who provides the capital, and the regulatory frameworks they operate within.

The table below breaks down the key distinctions across seven critical dimensions:

Fundamental investment philosophy and approach

Private Equity: Enhancing mature businesses through control and optimization

Private equity firms target established companies with stable cash flows, often in traditional sectors such as industrials, healthcare, and logistics. These companies may be undervalued, operationally inefficient, or positioned for consolidation.

PE firms typically acquire majority or full control of the business through leveraged buyouts (LBOs), using 70–90% debt to finance the acquisition. The assets and cash flows of the acquired company are used to secure and repay the debt, allowing the PE firm to amplify returns on invested capital.

The core strategy revolves around value extraction and enhancement, which may include:

• Replacing or strengthening management teams
• Streamlining operations and reducing costs
• Divesting non-core business units
• Executing bolt-on acquisitions to build market dominance
• Preparing for a strategic exit (trade sale, secondary buyout, or IPO) within 3–7 years

In essence, PE creates value by tightening the machine—applying operational discipline and financial engineering to drive EBITDA growth and capital efficiency.

Source: Dealroom

Venture Capital: Accelerating early-stage innovation and scale

Venture capital, by contrast, focuses on startups and emerging businesses in high-growth industries—such as SaaS, fintech, biotech, and AI—that are often pre-profit and sometimes pre-revenue.

VC firms typically invest in minority stakes, participating across multiple rounds (Seed, Series A/B/C) as the startup hits key growth milestones. The investment is not just financial—VCs contribute through:

• Strategic guidance at board level
• Access to partnerships, talent, and future investors
• Deep expertise in navigating early-stage scaling challenges

Rather than restructuring a business, VC firms bet on exponential growth potential, aiming to back category leaders before they break out. The goal is to help these startups scale quickly, achieve market fit, and eventually exit via acquisition or IPO.

Source: SDH

PE and VC investment stage preferences

Perhaps the most universally applicable way to distinguish between Venture Capital (VC) and Private Equity (PE) is by examining the stage of company maturity at which they typically invest. While "stage" can mean many things, two of the most useful indicators are:

• Time in operation
• EBITDA performance (i.e., whether the company is generating operating profit).

If a company is younger than 5 years, still going through funding rounds, and not yet profitable, it is almost certainly a better fit for venture capital. This applies even to companies with strong growth and recurring revenue, as long as they’re still prioritizing scale over profitability.

Conversely, businesses that have been operating for more than 5 years and are generating positive EBITDA tend to be the domain of private equity. These companies are often stable, cash-flow positive, and looking for capital to expand, restructure, or buy out other players—not to validate their product or enter the market.

How PE and VC value a business

No matter how visionary the founder or how seasoned the investor, one unavoidable question defines every deal: What is the business worth? The answer differs drastically depending on whether the capital is coming from Venture Capital (VC) or Private Equity (PE)—because these investors aren’t just valuing companies, they’re pricing different types of risk and reward.

At the heart of this divergence is financial maturity. Private equity relies on hard financial performance—cash flow, EBITDA, comparables. Venture capital, on the other hand, often builds valuations around potential, narrative, and trajectory.

Private Equity valuation

Private equity investors acquire established companies with historical performance. As such, their valuation methodologies are grounded in traditional financial metrics. Most deals are priced using combinations of the following:

• EBITDA Multiples – The go-to valuation anchor. Enterprise value is derived using a market-justified multiple (e.g., 6–10x EBITDA), based on size, sector, and growth trajectory.
• Discounted Cash Flow (DCF) – Future free cash flows are forecasted and discounted back using a WACC or IRR hurdle.
• Comparable Company Analysis – Public peers are used to extract average valuation multiples such as EV/EBITDA or EV/Revenue.
• Precedent Transactions – Past M&A deals in the sector inform what strategic buyers or sponsors have historically paid.
• LBO Modelling – Calculates the max acquisition price while achieving target equity returns, factoring in the impact of debt financing.
• Asset-Based Valuation – For capital-intensive or distressed companies, value is anchored in tangible net assets.

PE valuations are primarily a function of what exists today, combined with a conservative view on what can be optimized post-acquisition.

Venture Capital valuation

Venture capitalists face a different challenge: valuing companies that often lack both profits and predictability. Since traditional models fall short in early-stage investing, VCs apply methods built for ambiguity and optionality:

• Venture Capital Method – Starts with a projected exit valuation (e.g., $500M in 7 years), discounts it by the expected ROI (say, 10x), and backs into today’s pre-money valuation.
• Scorecard Method – Benchmarks the startup against recently funded peers and adjusts for team, product, market, and competition.
• Berkus Method – Assigns dollar values to risk-reducing milestones like IP, prototypes, and leadership.
• First Chicago Method – Combines multiple outcome scenarios (best case, base case, worst case) into a weighted valuation.
• Comparable Transactions – Uses other recent VC rounds in the same industry and region as pricing benchmarks.
• “Multiple of Dreams” – An informal way VCs joke about pre-revenue valuations—implying that story, vision, and founder quality drive pricing when no financials exist.

Valuations at this stage are rarely precise. Instead, they represent a negotiated belief in potential, with room for dilution, pivots, and fundraising cycles built in.

PE and VC portfolio concentration vs capital per deal

While both PE and VC firms may manage similar fund sizes in dollar terms, how that capital is deployed across a portfolio differs significantly.

Private equity tends to invest more capital into fewer companies, while venture capital spreads smaller investments across a larger number of startups. This difference impacts not just portfolio construction, but also the level of risk, involvement, and return expectations per investment.

Private Equity: Fewer bets, bigger capital

Private equity firms typically make large, concentrated investments, often ranging from $50 million to over $1 billion per deal, especially in buyouts of mature, profitable businesses. This capital usually comes from institutional investors like pension funds, sovereign wealth funds, and family offices. Because these transactions often involve full or majority ownership, the investment is deeply tied to transformation goals—turnarounds, operational improvements, and scaling.

• Average number of portfolio companies per PE fund: 6–12
• Typical investment size: $100M–$1B+
• Ownership structure: Majority or full control
• Example: A PE firm acquires a logistics company for $400 million, restructures its operations, installs new leadership, and exits through a strategic sale in 5–7 years.

The concentrated nature of PE portfolios means each investment carries substantial weight in overall fund performance, leading to deeper diligence, slower deal pacing, and heavier post-investment involvement.

Venture Capital: More bets, smaller cheques

Venture capital firms operate on a high-volume, high-variance model. They write smaller cheques—typically $500,000 to $10 million per round, though this can go up significantly in later-stage deals. Because VC targets early-stage startups, capital is often deployed in tranches (Seed, Series A, B, etc.) across multiple rounds and companies.

• Average number of portfolio companies per VC fund: 20–50+
• Typical investment size (early-stage): $0.5M–$5M
• Ownership structure: Minority stake
• Example: A VC fund invests $2 million in a SaaS startup at Series A, aiming for a 10x return on exit through IPO or acquisition.

This diversified strategy reflects the high-risk, high-reward profile of startups—where most companies may fail, but one or two "unicorns" can return the entire fund (and more).

Source: Clearlight Partners

Ownership and control

One of the clearest distinctions between private equity (PE) and venture capital (VC) lies in how much ownership they acquire and how much control they exercise. These differences are not just legal—they reflect how each investor type views risk, influence, and return.

Private Equity: Majority control with strategic oversight

Private equity investors almost always take a majority or full controlling stake in the companies they acquire. While full buyouts are common, it's not unusual for PE funds to require existing founders or management teams to retain some equity—a “rollover” stake—to keep them motivated and aligned.

• Risk management: With large capital deployment per deal, control helps reduce uncertainty.
• Operational transformation: Many PE firms specialise in optimising performance through cost restructuring, growth strategy, or M&A roll-ups.
• Decision-making agility: Control ensures the firm can implement value-creation plans quickly, without requiring consensus from multiple stakeholders.

Still, PE funds don’t run businesses day to day. Instead, they often install or support strong management teams while retaining high-level oversight, usually through board control, financial governance, and performance incentives.

Illustration Insight:

The PE-backed ownership pie typically consists of the PE fund holding the dominant share, with smaller stakes left for the founder (often significantly diluted) and the management team (via incentive equity or performance-linked shares).

Venture Capital: Minority stakes with founders at the helm

In contrast, VC firms are built around minority ownership. A typical VC stake ranges from 10% to 30% per round—large enough to matter, but small enough to leave control with the founding team.

• Portfolio diversity: VC funds spread risk across 20–50+ companies. Minority stakes enable more bets with less oversight per deal.
• Founder-first model: VCs invest in visionary entrepreneurs and want them to stay in charge. Founder retention is often key to long-term success.
• Advisory role: Rather than controlling operations, VCs influence companies through board seats, strategic input, and network support.

Ownership in a VC-backed company tends to be more distributed. Besides the founders and VC funds, it's common to see angel investors, early employees (with stock options), and multiple VC rounds on the cap table.

Source: Clearlight Partners

How PE and VC exit their investments

Private equity (PE) and venture capital (VC) firms both invest with one ultimate goal: a successful exit that delivers strong returns. However, how they get there—and when—differs meaningfully. These exit strategies are shaped by the maturity of the company, the investor’s ownership level, market conditions, and fund timelines.

While PE and VC can technically pursue the same exit routes, their preferences and patterns often diverge due to the nature of the companies they back and the roles they play post-investment.

Private Equity exit strategies

Private equity funds typically begin preparing for an exit once the company has undergone operational improvements, achieved sustainable EBITDA growth, and met performance targets. The fund’s priority is to maximize enterprise value and return capital to its limited partners, usually within 4–7 years of acquisition. Common PE exit routes include:

• Strategic Sale (Trade Sale): Selling the company to a larger corporate buyer within the same or adjacent sector. This remains the most common exit type due to strong buyer synergies and fewer post-deal complications.
• Secondary Buyout: Selling the company to another PE firm. This is increasingly common in 2024–2025, as funds focus on sector specialization and buyers are comfortable acquiring well-run, sponsor-backed assets.
• Initial Public Offering (IPO): Taking the company public. While IPOs offer liquidity and premium valuations, they are less frequent due to market volatility and higher compliance burdens. Still, they remain viable for large, stable businesses with growth stories.
• Recapitalization: PE firms may refinance the company and issue a dividend recap to partially return capital while continuing to hold a stake—a partial exit that maintains upside potential.
• Management Buyout (MBO): Sometimes, the existing management team acquires the company, funded by debt or a new financial sponsor.

In 2024, global PE exit activity fell to a 5-year low, with IPOs representing less than 10% of all exits. Strategic and sponsor-to-sponsor sales dominated the landscape due to ongoing macro uncertainty and delayed public listings

Venture Capital exit strategies

Venture capital firms invest in companies earlier in their lifecycle, which means longer holding periods and more varied paths to liquidity. Unlike PE, which typically exerts control, VC acts as a partner—relying on the founding team to grow the company toward an exit event. Most common VC exit routes include:

• Acquisition (M&A): A larger tech or strategic company acquires the startup, offering immediate liquidity to VCs and founders. This is the most common exit path—especially in fintech, SaaS, and consumer tech.
• Initial Public Offering (IPO): While rarer than M&A exits, IPOs are still the most celebrated form of VC exit. A successful listing often commands higher valuations and provides access to additional growth capital. However, IPO windows are highly cyclical and success depends on company scale and market readiness.
• Secondary Sale: VCs may sell their stake to another fund or private buyer in a secondary transaction. This is common during later rounds or in situations where early-stage investors wish to realize gains before a major exit.
• Management Buyout (MBO): Less common, but viable if a company becomes profitable and the team wants to regain full control.
• Write-offs and Liquidation: For underperforming or failed startups, liquidation is the last resort. In such cases, VC funds typically absorb the loss and focus on upside from other portfolio companies.

In 2024, nearly 60% of global VC exits came via acquisitions, with IPOs still sluggish but showing signs of life in late-stage AI, biotech, and climate tech categories. In case you are interested, here are the top VC exits:

Source: CB Insights

Exit Strategy Comparison

Risk and return profiles

Returns expectations vary significantly between private equity (PE) and venture capital (VC), driven by each asset class’s approach to risk, portfolio construction, and exit timelines. While both aim to outperform public markets, PE emphasizes stability and control, whereas VC embraces asymmetry—banking on a few breakout winners.

Private Equity Returns: Steady growth, structured outcomes

Private equity investors typically target annualized internal rates of return (IRR) between 15% and 25% over the life of an investment. These returns are generated through operational improvements, cost rationalization, and strategic exits via M&A or secondary sales.

PE deals generally aim for a 2x to 3x return on invested capital. Unlike VC, where outcomes are uncertain, most PE portfolio companies are expected to produce some level of return, with relatively few write-offs.

Venture Capital Returns: High risk, high reward

VC investors operate on a power-law model, where 80–90% of returns come from 10–20% of the portfolio. As a result, VCs tolerate significant failure across their fund, hoping to back one or two unicorns that return 10x, 50x, or even 100x.

Typical IRR expectations by stage:

• Early-stage VC (Seed–Series A): 30–40% IRR
• Growth-stage VC (Series B–D): 20–30% IRR
• Overall fund target: 3x+ net return over a 10-year fund cycle (Carta, Q4 2024; GoingVC, 2024)

Despite challenges, VC still produced success stories in 2024, particularly in AI, clean energy, and biotech. However, the broader US Venture Capital Index returned just 1.4% in H1 2024, reflecting tough IPO conditions and fewer high-value exits (Cambridge Associates, 2024; Newcomer, 2024).

PE vs VC Returns at a glance

Unlocking Private Market opportunities with StashAway Private Credit

While institutional investors and large funds have traditionally dominated private equity and venture capital, accredited investors today can also access these exclusive opportunities—particularly through private credit. StashAway offers a seamless, digital-first gateway into this historically underutilized asset class.

StashAway Private Credit provides curated access to private credit investments that offer the potential for higher yields and lower volatility than traditional fixed income—without giving up liquidity. 

By investing in asset-backed lending strategies and carefully underwritten credit deals, StashAway’s Private Credit portfolios are designed to provide stable cash flows and downside protection, especially in a rising rate environment.

Whether you’re seeking consistent income, lower drawdowns, or alternatives to traditional bonds, StashAway’s Private Credit offering gives accredited investors a chance to participate in high-quality private market deals that were once reserved for the ultra-wealthy and institutions.

Available Only to Accredited Investors

StashAway Private Credit is only available to accredited investors. If you qualify, you can start exploring private credit investments from your StashAway app or dashboard.

How PE and VC Unlock competitive returns for sophisticated investors

In today’s financial landscape, the smartest capital is moving off the public stage. Private Equity and Venture Capital aren’t just alternative asset classes anymore—they’re where the most strategic, risk-adjusted, and future-aligned returns are being made.

For institutional and accredited investors, the appeal isn’t novelty—it’s necessity. The public markets are increasingly overvalued, slow-moving, and reactive. By contrast, PE and VC offer what traditional assets can’t: control, early access, asymmetrical upside, and the ability to actively shape outcomes.

Private Equity provides a direct lever into value creation—controlling mature businesses, transforming operations, and exiting with precision. Venture Capital bets on the frontier—backing the next AI giant, fintech disruptor, or biotech breakthrough before it becomes obvious.

In a world where alpha is scarce, both PE and VC offer it through different paths: one through disciplined execution, the other through moonshot innovation.