Private equity is sometimes confused with venture capital, as both terms refer to firms that invest in companies that later exit by selling their investments. But there are significant differences between the two terms, and startups investigating private equity need to understand clearly what it entails and what it can mean for their business growth.

What is private equity? Private equity is capital invested in a company or startup that is not publicly listed or traded, while VC is funding given to startups that show the potential for long-term growth.

What is a private equity firm? A private equity firm is a type of investment firm that invests in businesses so they can increase their value over time and eventually sell that stake at a profit. PE firms raise capital from limited partners and usually take a majority stake when they invest.

What can private equity do for your startup? Private equity can buy the company out, cash out the founder, buy out other investors, invest in expansion capital, recapitalize businesses that are struggling, and offer strategic planning and assistance if the company is in trouble.

Private equity will often take a larger stake in a company than a venture capital deal would in part because it is seen as less risky than venture capital. Private equity investors are investing in a company that likely already has some established business fundamentals. But because this is a financial investment, founders should realize that private equity investors make their decisions based solely on projected return, and while they may be sensitive to the wishes of the founder, don’t expect them to be sentimental.

For startups looking to raise capital, Deal Box stands ready to help. Based in San Diego, Deal Box has more than 17 years of experience connecting companies to money.