Private equity (PE) invests in private companies—typically with meaningful revenue and cash flow—using strategies including leveraged buyouts, growth equity, and platform roll-ups to generate returns through operational improvement and financial structuring.

How it works

Buyout PE acquires control, often using leverage to amplify equity returns, then executes cost programs, add-on acquisitions, and management upgrades over three to seven years. Growth equity sits between VC and buyouts—minority or majority stakes in scaling companies without full LBO leverage. PE funds charge management fees and carry similar to VC but deploy larger checks into fewer companies.

Venture-backed startups may exit to PE sponsors in growth rounds or full sales. PE diligence emphasizes EBITDA, retention, and integration capacity—not just TAM stories.

Why it matters

• Founders: PE ownership means professional governance, performance metrics, and eventual sale processes—different culture from VC-backed growth-at-all-costs phases.
• Investors: LPs size allocations to PE for yield and diversification; GPs must not blur mandate drift between VC and PE strategies without LP consent.

Common mistake

Using “private equity” interchangeably with all private investing—VC is private markets investing but not PE in industry parlance.

Related ideas

See buyout, LBO, and private markets.