In the investment world, the acronyms VC (venture capital) and PE (private equity) are often used. Both categories refer to private equity, i.e. investing in companies that are not listed on a stock exchange. What are the distinctions?

Global context: the scale of the VC and PE markets

The private equity market is one of the most powerful drivers of the global economy. Today, venture capital (VC) and private equity (PE) investments involve colossal sums of money that determine the direction of innovation, job creation and even economic cycles.

Market size

VC and PE are systemic instruments that shape the strategic development of companies, stimulate innovation, and transform business ideas into tangible economic outcomes.

According to analytical agencies, the total volume of global VC and PE deals exceeded $639 billion in 2024. This figure is comparable to the annual GDP of countries such as Sweden or Argentina. This reflects not only investment activity but also structural changes in the economy, such as a shift in focus from public markets to private instruments, where greater flexibility, confidentiality, and profitability can be achieved.

Even more surprising are the figures for assets under management by funds. Today, they are measured in tens of trillions of dollars. However, despite this, private capital accounts for only around 12% of the total capitalisation of public markets. This means that there is enormous potential for further growth. The more institutional and private investors seek alternatives to traditional stock exchanges, the faster the influence of VC and PE expands.

Venture capital primarily supports startups and young companies that develop innovative products. It acts as a catalyst for technological progress; without venture capital investments, modern giants such as Google, Airbnb, and Spotify would not exist.

Meanwhile, private equity focuses on established businesses in need of strategic capital for restructuring, expansion or efficiency improvements. Together, venture capital and private equity cover the entire business life cycle, from idea to global leader.

Such volumes are explained not only by financial capabilities, but also by confidence in these instruments. Investors increasingly view private equity as a hedge against the volatility of public markets and as a source of long-term growth. This is particularly evident in an era of technological transformation. When artificial intelligence, biotechnology or renewable energy create new markets, it is private investors who provide the initial financing.

Global trends

The world of venture and private capital is changing at a pace that would have been difficult to imagine ten years ago. After a decade of steady growth, the market experienced a period of excessive optimism, followed by a sharp decline, and is now gradually entering a more mature phase. Recent global trends demonstrate how investment behaviour is being transformed by macroeconomic factors, new technologies, and changes in the demand for capital.

2021 was a historic milestone for venture capital, with an explosion in investment activity. Funds around the world attracted record amounts of capital, and startups received funding at stages that, until recently, were considered too early or too risky.

It was a year when technology markets, particularly those in artificial intelligence, fintech, biotechnology and climate technology, experienced an explosion of capital. Entrepreneurs were able to raise tens of millions of dollars for ideas that lacked a stable business model. However, this period of excessive enthusiasm also had a downside.

In 2022, the venture capital industry experienced a sharp slowdown. Rising interest rates, slowing economic growth, and geopolitical tensions made capital more expensive and reduced the attractiveness of company valuations. Investors became more cautious, demanding proof of effectiveness, stable cash flows and real demand instead of rapid scaling. This market reassessment was inevitable — it weeded out weak projects and shifted the focus to sustainability.

By 2024, the market had begun to recover. Although transaction volumes have not yet returned to their 2021 peaks, investment activity has become more considered. Funds have directed capital towards established startups with a finished product, customer base, and clear development strategy. Particular attention has been paid to companies integrating artificial intelligence into traditional business models, as well as startups focused on sustainable development and energy efficiency. Consequently, the venture market transitioned from an 'investment hype' to a 'smart growth' model.

Unlike venture capital, private equity has demonstrated stability and strategic depth. PE funds have always adopted a longer-term approach, investing in established companies in need of restructuring or expansion. The lion's share of the total transaction volume is concentrated here, as the value of a single PE transaction can reach billions of dollars.

Current trends show that both areas are evolving from chaotic growth to strategic thinking. Investors are increasingly valuing deal quality over quantity. This demonstrates that the private equity world has matured, adopting a long-term view of the value it creates for the economy, as well as focusing on billions.

Examples of deals

Successful venture capital and private equity investments demonstrate how risk can be transformed into a strategic advantage and how capital can be used as a catalyst for innovation and transformation.

Let's start with venture capital. Its essence lies in the ability to recognise potential in nothing but an idea. This is precisely what occurred with Google, which received its initial venture capital funding from Sequoia Capital and Kleiner Perkins in 1999. At the time, Google was a small startup competing with dozens of search engines. However, venture investors recognised the potential of the two Stanford graduates, Sergey Brin and Larry Page, to create a new search architecture — not just a website, but a technological platform that would become the gateway to the internet.

The risk seemed enormous at the time, as the market was young and profitability was uncertain. However, it was thanks to venture capital that the company was able to develop a unique algorithm and expand its infrastructure, becoming one of the largest players in the global economy.

Facebook followed a similar path, receiving funding from Accel Partners in 2005. At that time, it was merely a student project with a few hundred thousand users. However, venture investors recognised not just a social network, but a new model of digital communication. Their investment paid off — within a few years, the company had become a global leader in social platforms.

Such stories demonstrate that venture capital encompasses more than just money; it involves belief in an idea, a vision of the future and a willingness to finance the unknown. In contrast, private equity operates quite differently. Rather than creating something new, its strategy is to improve what already exists.

A notable example is Blackstone's acquisition of Hilton Hotels in 2007 for $26 billion. At the time, the deal seemed risky, as the world was on the brink of a financial crisis. However, Blackstone identified an opportunity for substantial restructuring, including optimising management, revitalising the brand, and digitising processes. Within a few years, Hilton had not only restored its profitability, but also become a symbol of successful business transformation. In 2013, the company was listed on the stock exchange again, and its share price increased significantly, providing investors with billions of dollars in profits.

These two examples — Google and Hilton — illustrate two sides of the same process. Venture capital creates new businesses, shaping the future, while private equity stabilises the present by making mature companies more efficient. This interaction creates the life cycle of the global economy: an idea is born, grows and matures, eventually becoming part of a stable, profitable market.

Key contrasts

Company development stages and investment types

Pre-seed

This is traditional venture capital territory, characterised by the highest risks and greatest prospects. The stage is one of the earliest, when there is only an idea and perhaps the first lines of code or a prototype. Founders typically raise the initial capital from their own pockets or friends and acquaintances. However, venture capitalists and angel investors frequently participate in funding.

Seed

The company already has a working product and its first users. The goal is to test the market, gather feedback, and confirm or reject hypotheses. Angel investors, accelerators and early-stage venture capital funds invest at this stage.

Series A, B and C (scaling stages)

By this point, the company has proven a demand for its product. The next step is to scale up. Series investments go in alphabetical order: A, B, C and so on, with each successive letter representing an increasingly large funding round and business growth. Venture capital funds, corporate investors, and large private investors commit here, while private equity (PE) funds also start to appear.

Growth/expansion stage

This is traditional PE territory, where a company has a permanent presence in the market, strong profits, and some recognition. The focus is now on strategic scaling, such as M&A deals or entering international markets. Late-stage VCs, PE funds and large corporates are interested in such businesses.

VC and early-stage investments

Venture capitalists usually enter at the seed or series A stages when:

• The product has just been developed or entered the market.
• The company does not yet have a stable revenue stream.
• The risk of capital loss is high.
• However, growth potential is also high.

In the above conditions, traditional methods of securing financing, such as bank loans, are unavailable. This is where venture capital funds come in, as they specialise in high-risk assets. They aim to find a team with an idea that can be scaled up to generate significant future profits (10x–100x).

In the early stages, a company can raise anywhere from $100k to several million dollars in venture funding, depending on the market and its ambitions. In return, the fund gets a stake, typically between 7 and 10 per cent.

PE and investment in mature companies

From a PE perspective, mature companies are those that require additional capital to grow to the next level. At the same time, such a business already has stable revenue, profits, a management structure, staff, customers, and partners.

PE funds buy a stake in such companies to restructure and optimise them. There are several common investment formats to do it:

• Buyout: The fund buys all or part of a company from previous investors, founders, or owners.
• Growth equity: The fund invests in a company without gaining control, providing it with resources for growth (e.g. new markets, R&D, production expansion). This is a less aggressive format.
• Turnaround or special situations: investing in companies that are experiencing difficulties but have the potential to recover. This requires expertise and active management involvement.

Unlike venture capital, private equity (PE) does not take a gamble, but works with businesses that have already proven their viability. Consequently, risks are lower and expectations are more predictable.

• Target returns are 2-3x over 5–7 years.
• The internal rate of return (IRR) is 15-25% per annum.
• There is less volatility compared to public markets.

Furthermore, PE enables investors to influence the fate of the company by changing management, cutting costs, launching new products and merging businesses, for example.

What to choose between risks and returns?

High risk and return potential in VC

Venture capital funds work in the early stages of a company's life cycle. At this point, the product may not yet be on the market, the business model is untested, and the founding team is still finding their feet. Competition and technological change can destroy any advantage in a matter of months.

In other words, VC is an investment in uncertainty, where the bet is on potential rather than stability.

However, imagine you invested $250k in a seed-stage company. Five years later, the company is sold for $250 million, making your stake worth $25 million. That's a 100x return. Stories like this are rare, but they drive the industry forward.

Lower risk and greater stability in private equity (PE)

Private equity (PE) funds typically invest in established private companies with a proven business model, consistent sales and a reliable cash flow, as well as an experienced management team.

Such companies are much less likely to go bankrupt than startups. Furthermore, funds don't just invest money; they also play an active role in management, optimising processes, reducing costs and increasing profitability.

Unlike VCs, PE does not expect cosmic results, but its returns are stable and competitive.

• The average IRR (internal rate of return) for PE is 15-25% per annum.
• Funds typically expect a return of 2–3 times the invested capital over 5–7 years.
• Compared to public markets (equities/bonds), this offers a higher return with lower risk.

Capital allocation: differences in the size and structure of investments

Capital allocation in startups via VCs

Capital never flows into startups overnight. Instead, the venture capital model involves incremental funding through rounds, where each successive round increases the company's valuation.

The main rounds are:

• Pre-Seed/Seed: MVP and early traction; amounts from $50k to $2m.
• Series A: The product is working, and there are initial customers or users. Amounts are around $2–10 million.
• Series B, C and beyond: the business model is proven, and active growth is occurring. Amounts can reach $50 million or more.

Each stage involves new rounds of negotiations, company valuation agreements, legal documents and business due diligence. In exchange for capital, the VC fund receives:

• A stake in the company through preferred shares, which have special rights.
• It establishes rules for subsequent funding rounds, such as the right of first refusal (ROFR) and anti-dilution provisions.
• The right to appoint a representative to the board of directors.
• The ability to enter into an investment agreement, defining the terms, conditions, timing, and obligations of the parties.

The value of a VC fund lies not only in its finances but in its comprehensive support. Most leading funds also provide:

• Access to networking opportunities with new clients, partners, recruiters, etc.
• Mentorship and advice.
• Preparation for the next round of fundraising.
• Brand and market credibility. Having a well-known investor makes it easier to raise follow-on funding.

VC is also a 'quality mark' that opens doors to new markets.

Placing capital in large companies through Private Equity (PE)

Private equity usually targets mature companies with a proven business model. For example:

• A family business that requires professional management.
• Or a division of a large corporation that is being spun off into a separate company ('carve-out').
• A company that needs to be recapitalised or have its costs optimised.
• Or a business being prepared for an IPO, scaling up or sale.

The business sector can be any of the following: industry, healthcare, retail, logistics, technology, or another sector. The important thing is its potential for growth or efficiency improvement.

PE fund investments are much larger than venture capital ones. The typical range is:

• $10–50 million for small companies (lower mid-market).
• $50–500 million for the medium-sized segment (mid-market).
• More than $500 million for large-cap deals.

Investments received may be used for:

• Business restructuring.
• Investing in innovation or new markets.
• Debt load reduction.
• Improving financial discipline.
• Acquisition of other companies (roll-up strategy).

The fund typically establishes clear objectives, financial targets, and timeframes for implementation. In many cases, it engages external consultants or establishes a new management team.

Exit mechanisms and investment liquidity

Exit means the investor's withdrawal from the business. This can be either full or partial, but the main objective is to monetise the stake for maximum profit. For VCs and PEs, exit is the final stage of the investment cycle.

How do venture capitalists (VCs) make a profit?

Unlike traditional businesses, where owners can receive dividends, venture capital funds only generate income when they exit an investment. Venture capitalists realise their profits by:

• Growing the startup's valuation.
• Selling their stake (sometimes in full and sometimes in part).
• Receiving a multiplier on the capital invested (e.g. x5 or x10).

Measures of return valuation:

• MOIC (Multiple on Invested Capital): e.g. x3 means the investor has received three times what they invested.
• IRR (internal rate of return): VCs typically target 20–30%+ per year.

Please note that not every startup succeeds. Experience shows that around 70–80% of a VC portfolio can fail. Profits are usually provided by a few extremely successful companies, known as 'unicorns'.

VC funds have a limited lifespan, typically 10–12 years. Of this time, 3–5 years are spent on active investment, and the remainder is spent on exits and returning capital to investors (LPs). This means that each investment must have a clear exit strategy; otherwise, the fund will not be able to fulfil its obligations.

How do private equity funds generate profits?

Unlike venture capitalists, private equity funds are given control of the company from the outset. This enables them to actively manage the business, influence financial policy and make changes to management, costs, and the asset structure.

The exit plan is formed early on. PEs are rarely left in a state of uncertainty. Instead, they develop exit scenarios in advance, often with potential buyers. The basic mechanisms of an exit are as follows:

• Sale. The most common scenario is when a company is sold to an industry player who can benefit from integrating it into their own business.
• Secondary buyout: Another private equity (PE) firm buys the asset. For example, the first fund may have optimised costs while the second fund implements international expansion.
• An IPO (Initial Public Offering) allows the stake to be sold gradually, increasing in value on the public market.
• In a company buyback (also known as a management buyback), top management buys the PE fund's stake.

PEs focus on the following metrics:

• MOIC (Multiple on Invested Capital), typically 2–3x over the investment cycle.
• IRR (internal rate of return) is often 15–25% per annum.
• Cash-on-cash return is the actual cash return.

Compared to VC, PEs offer lower but more stable returns. Success is determined not by 'unicorns', but by the quality of execution of each deal.

Investor profile: Who chooses VC or PE, and why?

Investments in venture capital (VC) and private equity (PE) attract investors with different expectations, strategies, and risk tolerance levels. Successful capital allocation depends not only on the deal itself but also on how well the chosen strategy aligns with the investor's profile.

Investors who decide venture capital usually seek high returns, even if this involves the risk of losing their investment. Such investors tend to have the following traits:

• Willingness to wait four to ten years to realise a profit.
• Risk tolerance: A significant portion of the portfolio may not pay off.
• A propensity to support innovation and technology.
• They have a professional understanding of the startup market or access to fund analytics.

Typical VC investors include:

• Funds of funds, which invest in multiple VC funds for diversification.
• Institutional investors, such as pension funds, university endowments and public innovation funds.
• Wealthy individuals, such as top managers and entrepreneurs, who want to invest part of their capital in innovative companies.
• Corporate venture capital funds (CVCs), which are established by large companies for strategic investment in start-ups.

In turn, private equity attracts investors seeking controlled growth, stability and minimised risk. Key traits:

• A penchant for analysing financial statements and fundamentals.
• A focus on predictable returns through real business impact.
• An interest in diversified assets with restructuring or optimisation potential.

Private equity (PE) funds are typically invested in by institutional investors:

• Pension funds.
• Family offices.
• Insurance companies.
• Financial institutions.

Ultimately, the choice between VC and PE depends on several factors:

Risk profile. Would you be willing to lose 80% of your projects just so one could yield 50x profit? Then VC. If you want 2–3x returns in a controlled environment, then PE is the way to go.

Investment horizon: VC usually requires a longer wait, whereas PE returns capital somewhat faster (within 3–7 years).

Experience. Investors with experience in technology or innovation are more likely to choose VC. Traditional businesspeople and financiers prefer PE.

Investment objective: Some investors want access to new technologies as well as returns, and this is possible with VC. PE is more suitable for those seeking conservative capital appreciation.

Features of the PE and VC markets in Ukraine

The Ukrainian venture market

The Ukrainian venture market is a story of transformation — from an ‘outsourcing nation’ to a fully-fledged centre of technological entrepreneurship in Eastern Europe. Over the past fifteen years, the country has undergone an impressive transformation — from a few IT teams working on a contract basis to the creation of dozens of world-class products that attract venture capital from the US, Europe, and Asia.

The first signs of the venture market emerged in Ukraine in the 2010s, when technological communities, accelerators and local funds such as TA Ventures began to form. At the same time, a new culture of entrepreneurship emerged, focusing not only on development but also on creating unique products. This shift in thinking formed the basis for subsequent breakthroughs in venture capital.

A significant milestone was the emergence of the first exits and ‘unicorns’. The success stories of Grammarly and GitLab demonstrate that Ukrainian entrepreneurs can build large-scale international companies while maintaining a connection to the domestic technology sector. These examples have set a high standard for young startups, which now think globally from the outset.

According to industry research, venture capital investment in Ukrainian IT companies reached a record $571 million in 2020. While the rest of the world was struggling with the effects of the pandemic, Ukrainian innovators demonstrated their adaptability by swiftly transitioning to online products, SaaS solutions, EdTech and fintech. During this period, a new generation of startups emerged with business models focused on Western markets.

Despite all its devastating consequences, the war has become an unexpected catalyst for the maturity of the venture market since 2022. While some teams moved or registered their companies abroad, the core of Ukrainian R&D remained in the country. Against this backdrop of challenges, new areas of investment have emerged, including defence technology, cybersecurity, artificial intelligence and energy technology, as well as products with a social mission (impact-driven businesses). Investors began to view Ukraine as an opportunity to invest in technologies being tested in reality, rather than just a risk.

The Ukrainian venture market is currently supported by both private and public institutions. The Ukrainian Startup Fund (USF), international accelerators and diaspora funds provide a financial 'safety net' for fledgling teams. Additionally, business angels — former founders of successful companies — are increasingly reinvesting in new ideas, thereby creating a new generation of entrepreneurs with an ecosystem-based mindset.

The Ukrainian venture market differs from its European or American counterparts in that it is flexible and has a high proportion of technical specialists among its founders. Thanks to strong R&D teams and low operating costs, it is an environment where every dollar of investment often yields higher returns than in more developed countries.

Over the next decade, Ukraine stands a good chance of becoming a regional leader in technological entrepreneurship. In the context of post-war recovery, venture capital will become one of the main drivers of the economy, creating jobs and exporting products. It will also project an image of a country that is investing in its future as well as fighting for it.

The Ukrainian private equity market

It is a niche but strategically important segment of the investment space that is gradually emerging from the shadow of venture capital. Unlike the dynamic and more high-profile venture capital sector, private equity in Ukraine operates more quietly, focusing on medium- and long-term business transformations.

While the scale of this market is still modest, its growth rate indicates Ukraine's gradual integration into the global private equity investment system.

Unlike venture capital deals, which target startups and are measured in tens of millions of dollars, PE typically involves purchasing a controlling stake in a mature company, restructuring it, and scaling it up further. This is why such deals are less common in Ukraine, but they have a more significant impact on the economy.

One of the most high-profile events in recent years was the purchase of Ukrainian telecoms assets by the French company NJJ Capital (investor Xavier Niel) in 2023. Valued at $525 million, the deal was one of the largest PE investments in the country's history. This transaction demonstrated that Ukrainian assets can attract international capital even during wartime if they have a stable customer base and growth prospects.

Local and regional direct investment funds play a key role in developing private capital, with Horizon Capital considered the leader among them. In 2024, Horizon Capital's Growth Fund IV raised $350 million from international institutional investors, including the European Bank for Reconstruction and Development (EBRD), the International Finance Corporation (IFC), and the European Investment Fund (EIF). This level of investment not only demonstrates confidence in the management team but also recognises Ukraine's investment potential among global limited partners (LPs).

A distinctive feature of the Ukrainian PE market is its focus on businesses with export potential and a technological component. These include IT companies with global clients, agricultural enterprises focused on foreign markets, and businesses in logistics, food production and renewable energy.

Investors are looking for opportunities not only to make a profit, but also to support the structural modernisation of the Ukrainian economy. Due to the small size of the domestic capital market, most transactions are carried out in partnership with international financial institutions. These institutions provide financing, political risk guarantees, technical expertise, and access to international markets.

Nevertheless, the main challenge for private equity (PE) in Ukraine remains the limited exit mechanisms. Due to the underdeveloped stock market, most exits are carried out through strategic sales to foreign companies or mergers and acquisitions (M&A) abroad. Overall, there has been an increase in cases where investors have made profits by selling controlling stakes to multinational corporations seeking to enter the Ukrainian market quickly.

Recent years have also seen the emergence of new investment areas. Interest in defence technologies, cybersecurity and dual-use manufacturing solutions has increased during the war. These segments attract both venture capital and PE funds because they offer the prospect of rapid growth combined with high practical value.

While the Ukrainian private equity market has not yet reached the scale of neighbouring Central European countries, it has significant growth potential. The risks are certainly higher here, but that is precisely why the returns can be more substantial. Leading Western funds are interested in Ukraine; there have been successful deals worth hundreds of millions of dollars, and investment activity has continued even during the war. This proves that private equity in Ukraine is not just surviving — it is emerging as a fundamental tool for the country's recovery and future economic growth.

Conclusions

A comparison of venture capital (VC) and private equity (PE) reveals two distinct investment strategies that complement each other.

VC is a bet on the future: investors support young companies with high growth potential — and an equally high level of risk. While only a small percentage of startups achieve profitability or 'unicorn' status, it is these companies that generate the extremely high returns needed to offset losses from unsuccessful projects. VC drives technological progress and creates new markets, ranging from artificial intelligence to biotechnology.

Private equity, on the other hand, focuses on mature companies that have already proven the viability of their business model. The main goal of such investments is efficiency, not experimentation: optimising management, increasing profitability and preparing for a sale or IPO. The risks here are lower and the returns more predictable, which is why PE attracts institutional investors seeking a balance between stability and growth.

Experience around the world shows that both VC and PE are necessary for dynamic economic development. Venture capital investments create innovation, while private equity scales it up and integrates it into the real economy. The Ukrainian market is gradually following this logic: the venture ecosystem is actively driving technological breakthroughs, and although the PE segment is smaller in volume, it is helping companies reach a new level of maturity and competitiveness.