PE vs. VC - Why they’re not the same (and why it matters)

Written by Craig Unsworth - shared with permission.

If you spend enough time around the investment world, you’ll hear people use Private Equity (PE) and Venture Capital (VC) as if they were interchangeable.

They are not.

Both are investors. Both raise money from others. Both seek to generate returns. But the way they raise capital, structure investments, measure success, manage risk - and even the types of people they hire - are fundamentally different.

I’ve worked almost exclusively in the PE world for years as a Portfolio Chief Product Officer. Truth be told, I don’t particularly like the venture capital model. That’s not to say VC is bad - it simply plays by a different rulebook that doesn’t align with how I like to work. In PE, I’m measured by tangible impact, operational improvement, and commercial outcomes. In VC, the focus is often on “growth at all costs” and market capture over near-term profitability. They are two very different games.

Here’s how they differ.

1. How They Raise Money

Private Equity

• Raise capital from large institutional investors - pension funds, insurance companies, sovereign wealth funds, major family offices.

• Fewer investors per fund, with larger commitments and longer lock-up periods.

• Often (arguably usually) use debt (alongside equity) to fund acquisitions - the leveraged buyout model.

Venture Capital

• Raise from HNW (High Net Worth) individuals, smaller family offices, corporates, and sometimes institutional investors - but usually in smaller ticket sizes.

• Little or no debt - almost entirely equity-based funding.

• More frequent fundraising cycles, as portfolio companies need ongoing capital.

2. How They Run Funds

Private Equity

• Larger funds, fewer portfolio companies - concentrated bets.

• Heavy operational involvement: strategy, governance, cost optimisation, scaling.

• Typically take controlling stakes.

• Target exit within 3-5 (sometimes up to 7) years, often via sale to another PE firm, a strategic buyer, or IPO.

Venture Capital

• Spread bets widely - expecting some companies to fail, some to break even, and a small few to deliver most of the returns.

• Usually minority stakes, particularly at earlier stages.

• Involvement is more advisory than operational - connections, recruitment help, fundraising guidance.

• Exit timelines can stretch to 5-10+ years.

3. Investment Structure

Private Equity

• Buyouts (majority ownership), growth equity for scaling, and corporate carve-outs.

• Debt financing is a key lever to amplify returns (and risk).

• Governance is tight and formalised.

Venture Capital

• Seed, Series A to D, and later growth rounds.

• Convertible notes, SAFEs, and preferred stock are common structures.

• Terms in early rounds are often more Founder-friendly.

4. Target Returns and Risk Appetite

Private Equity

• Target IRR of around 15-25%.

• Low tolerance for failure - companies are expected to be operationally sound from day one.

• Focus on EBITDA growth, cash flow, and multiple expansion.

Venture Capital

• Willing to see most investments fail in pursuit of the 10x or even 100x wins.

• Portfolio strategy assumes that a handful of big successes will offset all the losses.

• Focus on market size, disruption potential, and speed of growth - often before profitability.

5. People and Skill Sets

Private Equity hires:

• Operators, finance experts, strategy consultants, turnaround specialists.

• People comfortable with P&L accountability, change management, and hands-on delivery.

Venture Capital hires:

• Former Founders, sector trend spotters, network builders.

• People skilled in identifying market opportunities and spotting potential PMF (Product Market Fit).

6. Stages of Company Investment

Private Equity

• Targets established companies with proven revenues and customers.

• Typically profitable or on a clear path to profitability.

• Value is unlocked through operational improvement, strategic repositioning, or bolt-on acquisitions.

Venture Capital

• Invests in early-stage businesses - often pre-profit and sometimes pre-revenue.

• Betting on future potential rather than current performance.

7. Why the Distinction Matters

Mixing up PE and VC isn’t just a semantic slip. If you’re an executive, a Founder, or even a senior operator, knowing the difference matters for:

• Governance and expectations - PE demands different reporting, controls, and pace of change.

• Risk and reward - the way returns are modelled affects decision-making.

• Fit - the culture and operating model of a PE-backed business is different from a VC-backed one.

The wrong assumption about the capital backing you can lead to misaligned priorities, missed targets, and friction between management and investors.

8. Adding to the Confusion: ‘VC’ within PE Means… Value Creation

In Private Equity, “VC” is also shorthand for Value Creation.

This is the team that parachutes into portfolio companies to help improve performance post-acquisition - optimising operations, driving revenue growth, integrating bolt-ons.

So when someone working in PE says “I’m in VC”, they mean operational transformation, not venture capital funding.

A small but important detail - and one more reason the acronyms trip people up.

Summary Table

Both PE and VC play critical roles in the investment ecosystem - but they are not one and the same. Understanding which one you’re dealing with changes how you operate, plan, and measure success.

I work in PE because I prefer building tangible value over betting on unicorns.

My world is about operational excellence, commercial growth, and creating lasting enterprise value. VC? It’s a different (and equally valid) game entirely - one I’m happy (and only really experienced) to watch from the sidelines.

This article was originally written by Craig Unsworth. Republished here with permission.