The main difference between a private equity (PE) investor and a venture capital (VC) investor boils down to their appetites for risk and assessment of potential.
PE investors tend to invest in more established companies, those that have the potential to accelerate earnings growth with their help. Alternatively, VCs look for young, rapidly growing start-ups with unproven, but highly promising, value.
Picking the best fit for you will usually depend on the maturity and positioning of your business.
Picking the best fit for you will usually depend on the maturity and positioning of your business.
Deciding on the best investment partner
This is where experienced advisors come in. Clearwater brings vast and broad transaction experience and can quickly assess what type of investor fits the client's position, financial profile and future needs.
We start with taking a detailed understanding of our client’s preferences, running through the implications of each of the possible routes that may be open to you. We then match this with deep understanding of what different types of investors are looking for at a given moment in time as their ambitions and requirements can change significantly.
We are there to tailor the universe of choice and guide the positioning of the business for sale to ensure the best possible outcome for our clients.
The PE headlines - set timeframe, lower risk, proven business model
A PE investor will typically buy a majority stake (or large minority) and is the only new owner in a transaction. They will look for proof that the business model works, the company has an attractive market position and generate strong cash flows and will expect a return within a set timeframe which is usually between three to five years.
A PE investor will look for attractive new growth opportunities, opportunities that they can apply their knowledge and influence to accelerate. They can be called upon to provide capital and guidance when the business needs it, and they will predominantly buy "old" or existing shares in the business.
The VC headlines – longer timeframe, significant and disruptive potential, higher risks and rewards
VCs on the other hand will primarily look for a company with the potential to disrupt a large market, even though they could currently be loss-making and have not achieved their full potential. VC investors, therefore, can be characterised as having a much higher risk appetite. While all the companies they invest in will have significant and interesting potential, they will only expect around ten per cent of investments to deliver returns. However, the returns they will expect will be far greater.
VCs will typically become a small minority owner, usually together with other VC firms, in a transaction and will provide capital for "new" shares that are issued for their investment.
The PE headlines - set timeframe, lower risk, proven business model
A PE investor will typically buy a majority stake (or large minority) and is the only new owner in a transaction. They will look for proof that the business model works, the company has an attractive market position and generate strong cash flows and will expect a return within a set timeframe which is usually between three to five years.
A PE investor will look for attractive new growth opportunities, opportunities that they can apply their knowledge and influence to accelerate. They can be called upon to provide capital and guidance when the business needs it, and they will predominantly buy "old" or existing shares in the business.
The VC headlines – longer timeframe, significant and disruptive potential, higher risks and rewards
VCs on the other hand will primarily look for a company with the potential to disrupt a large market, even though they could currently be loss-making and have not achieved their full potential. VC investors, therefore, can be characterised as having a much higher risk appetite. While all the companies they invest in will have significant and interesting potential, they will only expect around ten per cent of investments to deliver returns. However, the returns they will expect will be far greater.
VCs will typically become a small minority owner, usually together with other VC firms, in a transaction and will provide capital for "new" shares that are issued for their investment.
Deciding on the best investment partner
This is where experienced advisors come in. Clearwater brings vast and broad transaction experience and can quickly assess what type of investor fits the client's position, financial profile and future needs.
We start with taking a detailed understanding of our client’s preferences, running through the implications of each of the possible routes that may be open to you. We then match this with deep understanding of what different types of investors are looking for at a given moment in time as their ambitions and requirements can change significantly.
We are there to tailor the universe of choice and guide the positioning of the business for sale to ensure the best possible outcome for our clients.
Knowledge
We don't hide behind jargon and complexity. Instead, we aim to open up the black box of M&A, illuminating the path with clear insight, simplifying the process, and delivering valuable information.
