The Different Kinds of Private Equity Funds -And How Do They Impact Your Investment Strategy

Private equity offers a spectrum of investment opportunities that can drive significant returns, but understanding the different types of private equity funds—venture capital, growth equity, and buyouts—is key to making informed decisions.

These three categories differ not only in size and target companies but also in how they approach control, risk, and potential returns.

Let’s explore the characteristics of each type and break down how they fit into the broader landscape of private equity investing.

Venture Capital

Venture capital (VC) focuses on early-stage, high-growth companies, typically in the technology, biotech, or emerging sectors. These companies often have little to no revenue but offer the potential for massive growth. As a result, venture capitalists are more interested in the company’s innovation, market potential, and scalability rather than its current financials.

Size

VC investments are typically smaller than other private equity categories, ranging from a few hundred thousand dollars to several million, depending on the stage of the company (seed, early, or late-stage). Venture capital funds often diversify their investments across many companies, recognizing that only a fraction will generate significant returns.

Control of the Company

Venture capitalists generally take minority stakes in the businesses they invest in, but they can still exert substantial influence, often gaining board seats or implementing strategic oversight. While they may not own a controlling share, they play an active role in helping guide the company’s growth and scaling processes.

Average Revenue per Target

Early-stage companies that attract VC funding often have little or no revenue. In many cases, they are in the product development phase or just entering the market. The focus here is on potential rather than current revenue, as the ultimate goal is to grow quickly and disrupt markets.

Risks

Venture capital is inherently risky. Most early-stage companies fail, which means that VCs operate with the understanding that many investments may yield no return. However, the few companies that do succeed often generate outsized returns, making venture capital a high-risk, high-reward strategy.

Growth Equity

Growth equity funds target more mature companies that have already established a stable revenue stream and are looking to expand. These companies typically need capital to scale operations, enter new markets, or acquire competitors but are not yet ready for a public offering or acquisition.

Size

Growth equity investments are usually larger than venture capital, often ranging from $10 million to $100 million or more. These funds invest in companies that are at an inflection point—ready for rapid growth but still in need of capital to unlock that potential.

Control of the Company

Growth equity investors usually take minority stakes, like VCs, but they often seek more influence over business operations. In some cases, they may negotiate veto rights over significant decisions or take board seats to ensure that the company stays on the growth trajectory outlined during the investment.

Average Revenue per Target

Unlike venture-backed companies, growth equity targets typically generate significant revenue, often in the tens of millions. These companies are not yet market leaders but are on the path to becoming major players in their industries, making them attractive targets for growth-stage investors.

Risks

The risks in growth equity are generally lower than in venture capital, as the companies are more established and have proven business models. However, scaling a business still presents challenges, including competitive pressures and market risks, which can impact the company’s ability to grow as projected.

Buyouts

Buyout funds focus on mature, established companies with stable cash flows. These funds typically acquire controlling stakes, or even full ownership, of their target companies. The aim is often to restructure, optimize, or turn around the business, with the intention of selling it for a profit or taking it public.

Size

Buyout transactions are the largest among private equity funds, with deals often exceeding hundreds of millions or even billions of dollars. These funds typically target companies that are financially sound but may need operational improvements, cost restructuring, or new management to increase profitability.

Control of the Company

Unlike venture capital or growth equity, buyout funds seek full control of the company. They typically acquire a majority stake, allowing them to make sweeping changes to management, strategy, and operations. This control is critical to executing their investment thesis, which often involves restructuring the company to drive efficiency and improve value.

Average Revenue per Target

Buyout targets are usually well-established companies with significant revenue, often exceeding $100 million. These companies typically operate in industries with steady cash flows, such as manufacturing, consumer goods, or mature service sectors.

Risks

While buyouts are generally seen as less risky than venture capital or growth equity, they still carry substantial risks. Leverage is often used in these deals, increasing the financial burden on the company. Additionally, the success of a buyout hinges on the ability to implement operational improvements or strategic changes, which may not always go as planned.

Understanding the Right Strategy for You

When deciding between venture capital, growth equity, or buyouts, the choice depends on your risk tolerance, capital, and investment timeline. Venture capital offers the chance for explosive growth but comes with high risk. Growth equity balances risk and reward, targeting companies that are further along in their business cycle but still have substantial room for expansion. Buyouts focus on established companies where operational improvements can lead to significant returns, albeit with less dramatic upside than earlier-stage investments.

For investors seeking diversification across the private equity landscape, each type of fund plays a role in balancing risk and return. A well-constructed portfolio might include a mix of venture, growth, and buyout investments to capture opportunities at different stages of the business lifecycle.

At Orgon Bank, we offer tailored private equity solutions that match your investment goals and risk appetite. Whether you're looking to back early-stage innovators, fuel the growth of mid-market companies, or invest in mature businesses with buyout potential, we have the expertise and access to guide you through every phase of private equity investing.