Are private investors and venture capitalists one and the same? No! There are distinct traits and criteria that distinguish the two.

Are private investors and venture capitalists one and the same? No! There are distinct traits and criteria that distinguish the two.

Venture capitalists support start-up and early stage companies. Private investors finance or purchase more mature companies, middle-aged even, and give them new leases of life. What both share is what they do: inject capital, provide counsel and governance, devise and implement stock and compensation systems, help with strategy and tactics, and in most cases, prepare their companies for private or public sale.

Both venture capitalists and private investors invest primarily with money they raise in the form of investment partnerships (via issuance of preference shares for instance). With those funds in hand, they use the same disciplines: assessing hundreds of business plans or buyout opportunities, weighing the arguments for and against investing in companies, and peering into the hearts and minds of the entrepreneurs or business people who need their backing.

When the risks are large, they often invest as syndicates, spreading the risk and potential reward among several firms. They charge fees for managing their partners’ capital and participate in their investors’ profits when they successfully exit their investments.