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

Are you trying to weigh the options between working in venture capital and private equity? Both can offer a rewarding finance career, but one may be more suitable than the other depending on your goals. 

In this guide about private equity and venture capital, we will help you understand the differences between the two career progression paths, firm types, and salary. Read on to find out about the opportunities and challenges that await in each and select the right choice for you.

What Is Private Equity?

Private equity (PE) are investments made in private companies or assets that are not publicly traded on stock exchanges. These investments are managed by private equity firms, which raise capital from institutional investors such as pension funds, endowments, and high-net-worth individuals. All these investors are known as Limited Partners (LPs). 

The PE firms then use this pooled capital to acquire, operate, and improve companies with the goal of selling them later at a profit. In some cases, private equity firms combine the investors' capital with debt or leverage. PEs usually buy or get a controlling stake in established but distressed, undervalued, or underperforming companies with great potential. 

The private equity firm acts as the General Partner (GP) and manages the investments on behalf of the LPs. If they sell a company or their shares in a firm for a profit, the firm and investors share the returns. The firm also charges a management fee to the investors which is often 2% of the invested amount.

👉 Want to learn more about this field? Check out our article What Is Private Equity?
 

What Is Venture Capital?

Venture capital (VC) is a type of private equity financing given to startup companies and small businesses with a high growth potential. Those who make this type of investment include venture capital firms, wealthy individuals, or specialized investment banks in exchange for an equity stake in the company.

While PE firms invest in established companies that once had excellent performance, VCs invest in early-stage companies that often lack a proven track record. This makes the investments risky but potentially lucrative. In exchange for their investment, venture capitalists receive ownership shares in the company. Their exit strategy is usually  an initial public offering (IPO) or acquisition, usually within 5-10 years.

VCs look for companies with innovative ideas, disruptive technologies, or business models that have the potential for rapid expansion. Besides capital, venture capital firms also provide expertise, mentorship, and access to networks to help the company succeed.

Key Tasks in VC vs. in PE 

• Venture capital firms start with deal sourcing where they network with founders, attend pitch events, and build relationships with angel investors to find promising startups. Once they find potential deals, the next tasks are conducting due diligence and valuation to evaluate the founding team, market size, technology/product differentiation, and growth potential. 
  
  They also provide portfolio support by offering strategic guidance, connect founders with customers/partners, and help with recruiting key talent. Depending on how things go, the VC firm decides whether to participate in subsequent funding rounds of portfolio companies. They also make pitches to limited partners to raise funds and keep on researching emerging sectors and technologies to identify investment opportunities.
   
• For private equity firms, they start with developing industry relationships with investment banks, business brokers, and company owners. Then they do financial analysis and due diligence on the potential companies. If there’s a good match, the next task for VC firms is to structure the deal by optimizing capital, negotiating purchase agreements, and arranging debt financing. 
  
  Once a deal goes through, PE firms start to implement strategic changes, cost reductions, and growth initiatives to improve operations. They also monitor the portfolio by tracking KPIs, managing board meetings, and overseeing management teams. Lastly, they plan exits by preparing the companies for sale through IPO, strategic buyer, or secondary PE transaction. 

As you can tell, these tasks are divided between the various positions in each firm. We will cover the roles and their responsibilities later. 
 

Company Type & Size in VC and in PE

VC and PE firms come in different sizes and types. Let’s explore them below.

Types of VC Firms

The most common types of VC firms are micro VCs, institutional VCs, corporate VCs, public-sector VCs, family offices, and angel syndicates. They have different focuses, investment strategies, and stages of engagement. Here’s a brief overview of each of these types of VC firms:

• Micro VC: These are also known as seed-stage VCs, and they concentrate on early-stage startups. They manage smaller funds ranging from $10 million to $100 million and usually invest between $50,000 to $500,000 in seed or pre-seed stage companies. Examples of micro VCs include First Round Capital, Uncork Capital, Initialized Capital, 500 Startups, and Haystack.
• Institutional VC: These are traditional VC firms that manage larger funds, often exceeding $100 million and sometimes reaching into the billions. Their funding preference is for Series A and later funding rounds where they invest between $1 million to $50 million. The most popular examples of institutional venture capital firms are Sequoia Capital, Andreessen Horowitz, Benchmark Capital, Accel Partners, and Greylock Partners.
• Corporate VC: These ones are investment arms of large corporations that invest in startups to complement their core business or explore new markets. They include Google Ventures (GV), Intel Capital, Salesforce Ventures, Microsoft Ventures, and Samsung NEXT.
• Government VC or Public-Sector VCs: Government VCs are funds managed or backed by government entities to stimulate economic growth and innovation. They prioritize social and economic impacts alongside financial returns. So, they often invest in specific industries or geographic areas. Examples include In-Q-Tel (backed by the CIA), Breakthrough Energy Ventures, British Business Bank, Bpifrance, Singapore Economic Development Board (EDB) Investments, and KfW Capital.
• Family Office: These types of VCs manage investments for high-net-worth families and often invest in startups. They can be more flexible and patient compared to traditional VCs in terms of providing long-term capital and access to their networks. They include Grove Street Advisors, Ludlow Ventures, Lerer Hippeau, March Capital Partners, and Soros Fund Management.
• Angel Syndicate: These ones are groups of individual angel investors who pool their resources to invest in startups. They include AngelList Syndicates, Tech Coast Angels, New York Angels, Golden Seeds, and The Fund.

Types of PE firms

The popular categories of private equity firms include leveraged buyouts, growth equity firms, real estate private equity (REPE), infrastructure funds, and mezzanine capital firms. Let’s explore the main types of PE firms below.

• Leveraged Buyout (LBO) Firms: These firms acquire companies using a combination of equity and borrowed money. LBO firms target established companies with stable cash flows. They include Blackstone Group, Kohlberg Kravis Roberts & Co. (KKR), and Carlyle Group.
• Growth Equity Firms: These firms invest in mature companies that are looking to expand but may not require the level of control that LBO PEs seek. They include General Atlantic, Summit Partners, and TA Associates.
• Real Estate Private Equity (REPE) Firms: These firms specialize in investing in real estate properties, including commercial and residential real estate. They may focus on acquiring, developing, or managing properties to generate returns. The most popular REPE firms are Brookfield Asset Management, BlackRock Real Estate, and Starwood Capital Group.
• Infrastructure Funds: These PE firms invest in essential services and utilities, such as transportation, energy, and social infrastructure. The investments are generally considered stable and low-risk due to the essential nature of the assets. Examples of these PE firms include Macquarie Infrastructure and Real Assets (MIRA), Brookfield Infrastructure Partners, and Global Infrastructure Partners (GIP).
• Mezzanine Capital Firms: These firms provide a hybrid form of financing that sits between debt and equity. Mezzanine capital is often used by companies to fund specific projects and is structured as subordinated debt or preferred equity. Examples include Golub Capital, Harris Williams & Co., and TripleTree.
• Distressed Private Equity Firms: These PE firms specialize in investing in companies that are in financial trouble or undergoing restructuring. They aim to acquire these companies at a lower price and work to turn them around. They include Oaktree Capital Management, Apollo Global Management, and Cerberus Capital Management.

Career Path Comparison – Working in VC vs. PE

Both Venture Capital (VC) and Private Equity (PE) follow a hierarchical career path – with similar entry-level roles, but differing structures, responsibilities, and salary development over time.
 

Salaries in Venture Capital and Private Equity

While Venture Capital and Private Equity have similar career structures, there are clear differences when it comes to compensation. Pay is consistently higher in Private Equity, even at the analyst level, salaries are significantly more competitive, and this trend continues all the way up to senior leadership roles.

VC roles are often associated with more flexibility, flatter hierarchies, and close interaction with founders. In contrast, working in PE tends to be more demanding and intense – which is also reflected in the higher compensation.

Although the career stages in both fields are quite similar, it’s still worth taking a closer look at the different roles.

Career Path in Venture Capital and Private Equity

While the demands, day-to-day work, and target companies in Venture Capital (VC) and Private Equity (PE) can differ significantly, the career paths in both fields are quite similar. Like most finance roles, they tend to follow a clearly defined structure and hierarchy:

Analyst:
This is typically the entry-level position, ideal for recent graduates or early-career professionals with 1–3 years of experience in finance, consulting, or a relevant industry. Responsibilities include market and competitor analysis, reviewing pitch decks and company materials, assisting in due diligence processes, and gaining first-hand experience in deal sourcing.

Associate (Pre-MBA):
Usually after 1–3 years, analysts may be promoted to associate – though this depends on performance and firm structure. Associates take on a more hands-on role in analyzing potential investments, working closely with founders or management teams, and supporting due diligence and deal execution. Scouting for new opportunities and contributing to portfolio work are also part of the day-to-day.

Senior Associate (Post-MBA):
With an MBA or equivalent experience, senior associates take on more ownership. They may lead smaller deals, play a bigger role in investment decisions, and work directly with partners. The role also includes mentoring junior team members and taking more responsibility in managing existing portfolio companies.

Vice President (VP):
VPs lead deal teams, structure and negotiate transactions, and actively maintain relationships with founders, portfolio companies, and external investors. They help shape investment strategies and are more involved in the strategic and operational development of portfolio companies.

Principal / Director:
This is a senior position with a strong focus on origination – identifying and developing new investment opportunities. Principals take on greater strategic responsibility and begin preparing for the transition into the partner level.

Partner / Managing Director (MD):
At the top of the hierarchy are the partners. They are responsible for fundraising, final investment decisions, and defining the long-term strategy of the firm. They also serve as key contacts for Limited Partners (LPs) and shape the firm’s position in the market.
 

How to Prepare for the Recruiting Process in VC and PE

Whether you choose to break into VC or PE, you can maximize your chances of getting in by doing self study, conducting mock interviews, and working with interview coaches. 

1. Do Self Study.

Having self-study sessions is very helpful when preparing for VC and PE roles. it’s during this time that you familiarize yourself with industry trends, key players, investment strategies, and anything else relevant to the sectors. You can do this by reading books, articles, and reports related to venture capital and private equity to build a solid foundation of knowledge. It will build up your technical knowledge and skills required including financial modeling, valuation techniques, and market analysis.

Besides theoretical knowledge, use the self-study sessions to analyze case studies of successful investments and exits especially for your target firms. This will help you develop skills for evaluating potential opportunities and understanding what makes a company attractive to investors.

2. Do Mock Interviews.

Mock interviews simulate real interview conditions, to help you practice answering common questions and receive feedback on your performance. Focus on common behavioral questions, technical skills, and case studies relevant to the industry. 

Engaging with peers or mentors who have experience in VC or PE can provide valuable insights and help you refine your storytelling abilities, which are crucial for success in these interviews. Also, consider recording your mock interviews to analyze your responses and body language. 

Try  to conduct multiple mock interviews to build familiarity with the format and reduce anxiety during actual interviews. The more you practice, the more comfortable you will become with articulating your experiences and demonstrating your fit for the role.

👉 Use our Meeting Board to connect with like-minded peers and practice mock interviews together.

3. Work with an Interview Coach.

Working with an interview coach who specializes in VC or PE can maximize your odds of getting the job. A coach can provide personalized feedback on your interview techniques, help you refine your pitch, and guide you in developing a compelling narrative about your career journey. They can also assist in identifying your strengths and weaknesses to help you focus on areas that need improvement.

A coach can also offer insights into the specific cultures and expectations of different firms to make your presentation more personalized which is something interviewers look for. They may also provide access to valuable resources, such as networking opportunities and industry contacts, which can help in securing interviews and offers.

👉 Want to prepare for your interview with an expert? Then check out our Coach Directory!
 

Key Takeaways

Venture Capital and Private Equity both offer attractive entry points and career opportunities in the finance sector, but they differ significantly in focus, culture, and day-to-day work.
VC focuses on high-growth startups, invests early, and works closely with founders. PE, on the other hand, targets established and often undervalued companies, structures complex deals, and drives value through operational improvements.

The career paths in both fields are similarly structured, but compensation differs: salaries and bonuses tend to be higher in Private Equity, though the expectations and workload are often more demanding.

Whichever path you choose, solid preparation, mock interviews, and possibly coaching can significantly boost your chances of success during the recruiting process.