Analytical Overview Of Private Equity And Venture Capital Investments In India

Alan Baiju, Jindal Global Law School

Introduction

Private Equity (PE) and Venture Capital (VC) are both methods of infusing capital into businesses through equity purchase, but they differ in their basics. PE involves investing in well-established privately held businesses in exchange for a share of the equity. The investors provide strategic, financial, and operational support and guidance but are not involved in the day-to-day operations of the portfolio firms. PE investments are made in matured companies that may be deteriorating or failing to make profits due to inefficiency or looking for expansion. The risk factor tends to be lower in PE as compared to VC since the investments are made in established companies with a good record.

In contrast, VC investments are made in start-up or early-stage businesses that have the potential for growth but also entail a degree of risk. VC investors provide funds in exchange for equity or ownership stakes and often take an active role in the management, networking, and support of the entrepreneur. VC investors aim to invest in ideas and innovations with the potential for growth and profitability. They consider the company's growth potential, management team, and uniqueness of products or services before investing. The percentage of total investment for VC investors does not exceed 49% of the ownership.