Venture firms provide growth capital to new or young companies in exchange for a minority equity position in the company. Most venture firms specialize in certain industries including telecommunications, software, biotechnology, healthcare devices, and the Internet. Because of their specialization and capital, venture firms help new or young companies grow rapidly. In fact, they will only back companies that can achieve very high growth in sales and earnings.
Buyout firms typically buy controlling interest in older companies
operating in rapidly growing or fragmented industries. Generally
they buy a business to serve as a platform for acquiring other
companies in the same or complimentary industries. Buyout firms
target certain industries, but they usually have a broader focus
than venture firms and target more industries. Both venture
firms and buyout groups invest capital to help companies accelerate
sales, add new products, expand operations, or acquire other
companies. Both groups will require board representation and
the ability to replace management in the event that the company
does not perform as expected.