VC vs. PE

Chris-Matteo:

Nutshell: VCs invest in earlier stage companies and take a minority stake. PE firms invest in later stage companies and take a majority or total interest.

Dude are you on meth or something, this is a 6 year old thread.

VC. Tech is the place to be at the moment with Silicon Valley by far the most prosperous industry anywhere.

Meanwhile, PE is undergoing intensified scrutiny as Romney and his taxes make carried interest a household conversation, to say nothing of what the anti-Bain-Capital-here's-how-they-borrowed-money-and-laid-off-people commercials have tarnished the common person's perceptions of PE in general. You may ask why this matters, but it's certainly harder bidding for a company if the seller thinks you're just going to over-lever it and wreck it.

To say nothing of the portion of PE returns that come from simple financial engineering versus VCs which actually invest in ideas. (I'll catch flak from this from the PE guys but they know it).

^ what the fuck are you talking about.

Pretty obvious. There's a difference between returns based on a debt recap, and returns from actual operational improvements and/or growth equity. Many buyout firms, by definition, focus on the former.

This isn't exactly controversial. A quick google search reveals everything from the basic Wikipedia article on LBOs (http://en.wikipedia.org/wiki/Leveraged_buyout#Rationale), to Warren Buffett (http://www.forbes.com/sites/robertlenzner/2012/01/14/why-warren-buffett…), to PE heads themselves (http://dealbook.nytimes.com/2010/02/11/p-e-should-forget-financial-engi…) acknowledge the financial engineering aspect.

What else do you find mind-boggling? "The sky is blue." "What the fuck are you talking about, 310 banker?!"

have you actually worked in PE or VC?

VC is a vastly shrinking industry and it is going to be harder and harder to break in, especially given that a lot of VCs want someone who has the industry background / skill set that their fund focuses on. Additionally, it is a difficult value proposition in these times with debt rates where they are for a company to consider giving up substantial equity to a VC when they could just as easily go to the capital markets and pay a lower rate of interest and still retain stronger ownership. That being said, I think VC is a really cool portion of the business life cycle to be in, and I would love to meet with companies in their early stage and help them grow, especially on the tech side. While I don't have a background in tech, I find some of these companies to be fascinating... new websites, app companies, and tech service companies pop up all the time, and they invariably have something sexy about them... Would be a cool job for sure... I still think the ability to get in and money is better in PE though...

I left a top mega HF (after IBD) for the VC fund I am currently at now (top-tier) which I also chose over a top PE fund - best decision I have ever made.

JimmyDormandy:

I left a top mega HF (after IBD) for the VC fund I am currently at now (top-tier) which I also chose over a top PE fund - best decision I have ever made.

Care to elaborate, JD? How so?

@melvvvar:

PE yes, VC no. What are you driving at?

Janitor or doorman?

Cleaning lady actually.

I don't care much about how "cool" the ideas are in VC or how PE firms can "add value"... I'm more concerned with what would give me flexiblity, a viable business network and independence in the remaining few years I have left on this planet... being independent and having the time & means to do what you want in life is much cooler than business/investing.

I would choose a top PE firm over VC... I think it's more likely that I will be able to use that to do my own thing later on... e.g. leave to do my own LBOs on a deal by deal basis for large investors/corporates/whatever capital sources I can convince, or get invested in proper companies by helping them do deals... I don't see how I could use VC as a springboard to financial and work/life independence.

I'm a bit biased as I'm currently in REPE... I've seen several people make 7 figures just by brokering a deal / doing an acquisition for a decently sized investor/corporate... no need to find the next facebook, just help a family office buy a skyscraper/mall... a few million in the bank would be quite liberating for someone young (in their 30s).

What do you guys think of my approach / thought process?

Technically, VC is a form of PE. What would distinguish a 'typical PE firm' from a 'typical VC firm' is the size of the financing deals and the degree of the client's infancy in the business cycle. VC firms typically are strictly the initial financiers whereas PE firms will provide financing at various levels of busines growth. Not sure it this makes much sense to you.

also with VC only a small percent of the deals make money, but when they do they are homeruns. in pe most of the deals make money, or atleast thats the goal

VC funds companies for growth and PE typically does buyouts which do not always necessitate high projections. Therefore, as KE said, a lot of VC deals do not receive a high IRR but when one does, it can be tremendous. This is due to the high equity stake they demand. PE firms can usually hit their target by just structuring the deal correctly with lots of leverage which is the main difference. VC transactions usually do not include leverage. They bank on incredible growth.

Examples. PE = HCA; VC = Silicon Valley/Web-Based fundings.

What kind of hours do associates at VC firms work? I assume it varies considerably, but does anyone know how the hours compare to PE?

VC typically favours Engineers and Bio-science grads. They need people who understand the technology.