Private equity firms invest later in a startup's lifecycle, typically around Series B, focusing on companies with at least $5 million in revenue.
Private equity firms invest later in a startup's lifecycle, typically around Series B, focusing on companies with at least $5 million in revenue for expansion or growth rounds.
The first one is private equity firms. Private equity firms, at the end of the day, they’re going to be those firms that are not investing in people, like let’s say venture capital firms would do. They actually invest in numbers. For this reason, they tend to invest a little bit later in the lifecycle of a startup, perhaps financing cycle, and that tends to be around a Series B, which tends to be the third round of financing that a startup company is going to be doing. At this point, what they’re going to be looking at is that there are revenues of at least $5 million and up, and they typically come in to do an expansion or growth rounds of that startup that they’re taking a look at. There are also many different flavors in which the private equity firm is going to be coming in, in terms of intentions, so that could be either just an investment, perhaps buying a controlling interest in
the business that they’re targeting, or even acquiring the entire business itself. Those are the three different things that you’re going to be seeing from those private equity firms that are going to be coming into the picture. The main difference is that private equity firms are going to be more of your endgame as an entrepreneur, rather than your earlier game, which is where you’re going to be seeing on venture capital firms. Always be pushing for the next financing cycle, and once you start to hit those revenues, then private equity firms may be your next institution that you want to target. But don’t waste your time early on with private equity firms. At least, it’s not bad to develop the relationship, but make sure that you have the expectations clear, and that is that they’re not going to be coming in if you are anywhere under $5 million in revenue on a yearly basis. Venture
capital firms are all about investing in people. They are investing in the early stages of a company. Now, obviously, you have the early-stage venture capital firms and the growth stage venture capital firms. But they always invest in people as a common theme. They’ve developed what they call the pattern recognition to understand which founding team or which team has the most amount of potential to execute. Typically, you’re going to be seeing venture capital firms investing when the company is doing over a million in revenue, but before that, you’re going to be seeing what they call the micro venture capital firms. Essentially, venture capital firms are going to be investing for the first time at the Series A round of financing. Then, you would see them investing on the different rounds: Series B, Series C, Series D, all the way until the company does an initial public offering when
they become publicly listed as a company. Typically, with venture capital firms, you’re going to have their partners, associates, analysts, and different types of personas that are going to be pushing from originating the deal to actually doing the due diligence and closing the deal. Venture capital firms are very easy in the form of how that due diligence works. Probably, on private equity, they’re going to be even more intense when it comes to the historical data because venture capital firms are banking on you, and they’re banking on helping you build the business, so they’re looking at the future rather than thinking so much about what has happened in the past, even though it’s important. Typically, the way that it works is that you arrive at the partners’ meeting on a Monday or a Tuesday, and you pitch in front of all the partners, and that leads with a term sheet, which then is
going to be due diligence, and then the closing. Venture capital firms are going to be investing anywhere between $250,000, all the way up. For example, you see on private equity firms that they’re investing much bigger amounts like millions, and it could be hundreds of millions.