Private equity, vs. investment banking, vs. venture capital


I hear these things thrown around, and when I Google them I just get thrown more jargon. Can someone explain what each entail?

In: 1

So take some of this with a grain of salt, I am not an expert, but I think I can answer your question.

Investment banking is like the middle man between people with money (investors) and people who want/need money (companies). Investment banking might help with IPOs (initial public offerings), they might advise, they might do a range of services that a company and/or investor needs.

Private equity is when a person/business owns and/or buys a company that is not publicly listed. A normal person cannot buy shares in this company. It’s not listed on the New York Stock Exchange or anything like that. It’s private, not public.

Venture capitalism is a form of private equity, so to speak. Venture capitalists look for companies that have something new, exciting, revolutionary, whatever, but they lack money. Venture capitalists will agree to invest money into the company, usually for an exchange of a certain percentage of the company’s future shares (these companies are not listed on stock exchanges, they are too new and small). There’s an element of risk obviously; most companies don’t pan out. But, if that company succeeds and eventually launches an IPO, a venture capitalist could make significant profit. People that have made a lot of money in one business don’t usually want to go through the stress of actually starting a new company. So instead, they look for one that’s got a lot of promise, and give them money.