Background and key terms

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Private equity and venture capital essentially involve the investment of capital in a unquoted company, in return for an equity stake. The investment is usually made on a medium to long-term basis.

There can be some discrepancy with the terminology used in the sector. The term 'private equity' is often used to describe the industry as a whole and the term 'venture capital' can be used synonymously with 'private equity' to also cover all stages of investment. However, a distinction can be drawn with 'private equity' being used to refer to investment in more mature businesses and 'venture capital' being used to describe investment in business that are still in the early stages of development.

Types of investment

Private equity and venture capital finance can broadly take the form of:

  1. •

    seed capital, which is capital provided to completely new businesses—finance is usually provided by friends and family of the entrepreneur setting up the business and by business angels (usually unconnected wealthy individuals)

  2. •

    venture capital, which is capital provided after seed investment and during the first few years of a business—finance

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