{"id":565470,"date":"2021-04-11T13:58:15","date_gmt":"2021-04-11T13:58:15","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/2021\/04\/11\/venture-capital-vs-private-equity\/"},"modified":"2021-04-11T13:58:15","modified_gmt":"2021-04-11T13:58:15","slug":"venture-capital-vs-private-equity","status":"publish","type":"post","link":"https:\/\/enterpriseam.com\/egypt\/2021\/04\/11\/venture-capital-vs-private-equity\/","title":{"rendered":"Venture capital vs private equity"},"content":{"rendered":"<p><a class=\"content-anchor\" id=\"tldr-story-07\"><\/a> <strong>Enterprise Explains: Venture capital vs private equity investments.<\/strong> At their core, venture capital and private equity have the same mandate \u2014 investing in companies and then exiting these investments to generate returns. Despite their similarities (and the fact that VC is actually a subset of private equity), the two types of investments differ vastly.<\/p>\n<p><strong>The definitions:<\/strong> Venture capital is capital funding provided by a group of investors to startups or small businesses in which they see long-term growth potential. These investments typically run high risk levels, but they also have the potential for higher payoff and higher-than-average returns as an upside. Venture capital is popular among startups and small businesses because they typically don\u2019t have access to capital markets or bank loans for funding, unlike a well-established corporation. Private equity, meanwhile, is a branch of investment banking whose goal is to take on an underperforming company or asset and manage or restructure it to increase its profitability. Both VC and private equity end with an exit once the investment has generated a certain level of return.<\/p>\n<p><strong>The key differences <\/strong>between these two types of investments:<\/p>\n<p><strong>#1 - The types and size of companies in which the investments are made:<\/strong> Private equity is typically used for mature, well-established companies that have potential to generate greater returns, or are experiencing a downturn and need an experienced pair of hands with deep pockets. VCs look at early-stage companies, and often focus on businesses in the tech, biotech, clean tech, and fintech spaces.<\/p>\n<p><strong>Many of the PE funds that come to Egypt have developed a particular liking for the infrastructure, fintech, and healthcare businesses.<\/strong> Examples include <a href=\"https:\/\/www.spe-capital.com\/\">SPE Capital Partners<\/a>\u2019 SPE AIF I fund \u2014 which <a href=\"https:\/\/enterprise.news\/egypt\/en\/news\/story\/b5282466-cd18-4f63-bc60-35676074ca59\">is active<\/a> in Egypt\u2019s healthcare sector \u2014 and pan-African PE firm DPI, which led a consortium of investors in the <a href=\"https:\/\/enterprise.news\/egypt\/en\/news\/story\/11c2d253-4e61-4f66-b7f4-5059bc06acff\">USD 126 mn acquisition<\/a> of Egyptian pharma company Adwia last year. Emerging markets PE giant Actis also entered into talks with the Sovereign Fund of Egypt <a href=\"https:\/\/enterprise.news\/egypt\/en\/news\/story\/11c2d253-4e61-4f66-b7f4-5059bc06acff\">earlier this year<\/a> to drive investment to Egypt worth some GBP 3 bn in infrastructure, health, and education, after <a href=\"https:\/\/enterprise.news\/egypt\/en\/news\/story\/1725a3aa-7d56-47d9-a14c-26b0b967aeb8\">saying last year<\/a> it has its eyes on fintech and healthcare acquisitions in Egypt. And global private equity outfit Apis \u2014 which is <a href=\"https:\/\/enterprise.news\/egypt\/en\/news\/story\/95c7e2c3-5a82-4189-b993-5363b003ee36\">setting up an office in Cairo<\/a> \u2014 specializes in financial services and is open to investing in Egypt.<\/p>\n<p><strong>#2 - The value of funding (aka \u201cticket size\u201d):<\/strong> The <a href=\"https:\/\/www.investopedia.com\/ask\/answers\/020415\/what-difference-between-private-equity-and-venture-capital.asp#:~:text=Private%20equity%20is%20capital%20invested,potential%20for%20long-term%20growth.\">global average<\/a> PE investment value for a single company is upwards of USD 100 mn, while the typical VC investment is in the neighborhood of USD 10 mn or less per startup.<\/p>\n<p><strong>#3 - Equity percentage:<\/strong> Because of the high risk associated with venture capital, these funds or firms typically invest in a small equity percentage (<a href=\"https:\/\/about.crunchbase.com\/blog\/venture-capitalist-percentage-ownership\/\">typically 50% or less<\/a>) per company \u2014 but have a bigger portfolio to spread the investments across. That way, if one investment flops, there are other prospects in their basket. Venture capital is solely equity-based, which gives investors a say in how the company is run and managed to increase the likelihood of its success. In the private equity world, investments use a combination of equity and debt: PE investors will usually snap up a company in its entirety, and then pour in investments to improve its performance.<\/p>\n<p><strong>How PEVCs are regulated in Egypt:<\/strong> The latest <a href=\"https:\/\/www.fra.gov.eg\/content\/efsa_ar\/laws_cma\/exclaw%2095.htm\">Capital Markets Act (pdf)<\/a> defines \u201cprivate ownership funds\u201d \u2014 a term that can be used interchangeably to refer to PE or VC funds \u2014 as closed-ended funds which raise money through private placements. These funds, which operate under the purview of the Financial Regulatory Authority, are allowed to invest in listed or privately-held securities, or any asset for which the FRA sets guidelines. As it stands, PE and VC outfits need to be managed by certified general partners (GPs) that meet licensing requirements defined by the FRA <a href=\"https:\/\/enterprise.press\/stories\/2018\/10\/10\/fra-lays-claim-to-pe-industry\/\">back in 2018<\/a>. Before the now-displaced Investment Ministry issued <a href=\"https:\/\/www.almasryalyoum.com\/news\/details\/1300993\">a 2018 directive<\/a> making the FRA the primary regulator of the industry, the limited partnership model (also known as the GP-LP structure or the preferred structure for PEVC activity) didn\u2019t exist.<\/p>\n<p><strong>Most PE and VC funds currently active in Egypt are first set up offshore<\/strong>, and then come to Egypt and the region eyeing investment prospects, Egyptian Capital Markets Association (ECMA) Chairman Mohamed Maher said last year (<a href=\"https:\/\/www.youtube.com\/watch?v=xH5uBqXavic\">watch, runtime: 4:47<\/a>). The majority of those based on-shore are traditional money market, stock, and fixed-income funds, according to Maher. Industry insiders we have previously spoken with told us that a large part of the impetus for setting up funds offshore is the simple fact that the PE and VC space in Egypt \u2014 and by extension, the regulations and legal frameworks that govern it \u2014 is still nascent, making it easier and more logical for investors to base their funds in tried-and-true markets.<\/p>\n<p><strong>What to expect this year from Egypt\u2019s VC world:<\/strong> In the first three months of the year, 34 Egyptian startups raised USD 22 mn, making Egypt the third largest recipient of VC funding in MENA, after the UAE and KSA, according to a <a href=\"https:\/\/enterprise.news\/egypt\/en\/news\/story\/3e6ff686-8c64-4a78-b0d9-3377eba63ca5\">Wamda report<\/a>. March alone saw startups in Egypt raising USD 5 mn, the report. And international funds are expected to continue piling into Om El Donia in 2021 as VC players, particularly those in the UAE, are being priced out of Saudi Arabia. Egypt already has an active VC market, accounting for 25% of the MENA region\u2019s transactions in the first half of 2020, according to <a href=\"https:\/\/enterprise.news\/egypt\/en\/news\/story\/9964a934-97ad-4046-bec9-c1e24f484676\">a Magnitt report<\/a>. Looking ahead, several VC firms have made commitments to invest in Egypt\u2019s tech space over the coming year, including Algebra Ventures through a <a href=\"https:\/\/enterprise.news\/egypt\/en\/news\/story\/0b05a266-cfd0-4843-a495-2434a6187cd1\">new USD 90 mn tech fund<\/a>, and Sawari Ventures through <a href=\"https:\/\/enterprise.news\/egypt\/en\/news\/story\/4fe9ecce-c61c-4c56-87ab-05ea2cb9c969\">a USD 28 mn tech fund<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Enterprise Explains: Venture capital vs private equity investments. At their core, venture capital and private equity have the same mandate \u2014 investing in companies and then exiting these investments to generate returns. Despite their similarities (and the fact that VC is actually a subset of private equity), the two types of investments differ vastly. The [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":565471,"comment_status":"closed","ping_status":"open","sticky":false,"template":"single-feature.php","format":"standard","meta":{"_acf_changed":false,"newspack_ads_suppress_ads":false,"newspack_popups_has_disabled_popups":false,"newspack_sponsor_sponsorship_scope":"","newspack_sponsor_native_byline_display":"inherit","newspack_sponsor_native_category_display":"inherit","newspack_sponsor_underwriter_style":"inherit","newspack_sponsor_underwriter_placement":"inherit","ep_exclude_from_search":false,"_primary_brand":0,"newspack_featured_image_position":"","newspack_post_subtitle":"","newspack_article_summary_title":"Overview:","newspack_article_summary":"","newspack_hide_updated_date":false,"newspack_show_updated_date":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[8794],"tags":[922,695,633,125,758,123,200],"brand":[],"newspack_spnsrs_tax":[],"class_list":["post-565470","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-enterprise-explains","tag-actis","tag-enterprise-explains","tag-enterprisepm","tag-investment-watch","tag-private-equity","tag-startups","tag-venture-capital","wpautop","entry"],"acf":{"mongo_id":"1a93933d-a582-4afd-865f-dc3ee1f82d62","is_powered_by":true,"story_type":"1","photo_url":"https:\/\/ent.news\/2021\/4\/388.jpg","photo_position":"above","related_issue":[565458],"teaser":"","voice_url":""},"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.1 (Yoast SEO v27.1.1) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Venture capital vs private equity - EnterpriseAM Egypt<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/enterpriseam.com\/egypt\/2021\/04\/11\/venture-capital-vs-private-equity\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Venture capital vs private equity\" \/>\n<meta property=\"og:description\" content=\"Enterprise Explains: Venture capital vs private equity investments. 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Venture capital \u2014 where investors provide funding to small businesses with long-term growth potential, in exchange for equity \u2014 has become a core component of startup financing. VC is actually a subset of private equity, although the two types of investment differ substantially. And it\u2019s booming,\u2026","rel":"","context":"In &quot;Enterprise explains&quot;","block_context":{"text":"Enterprise explains","link":"https:\/\/enterpriseam.com\/egypt\/category\/explainers\/enterprise-explains\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/ent.news\/2022\/2\/424.jpg?fit=%2C&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]},{"id":598498,"url":"https:\/\/enterpriseam.com\/egypt\/2019\/05\/27\/the-central-bank-of-egypt-wants-to-incentivize-banks-investments-in-equity-for-smes\/","url_meta":{"origin":565470,"position":1},"title":"The Central Bank of Egypt wants to incentivize banks\u2019 investments in equity for SMEs","author":"enterpriseam admin","date":"27 May 2019","format":false,"excerpt":"Bank investments in SME-focused equity funds now count toward minimum small business loan requirement: The Central Bank of Egypt (CBE) agreed yesterday to allow banks to count their own equity investments in SME-focused funds as part of the mandatory minimum portion of their loan portfolios they are required to allocate\u2026","rel":"","context":"In &quot;Speed Round&quot;","block_context":{"text":"Speed Round","link":"https:\/\/enterpriseam.com\/egypt\/category\/speed-round\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/ent.news\/internal\/536550.png?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]},{"id":550235,"url":"https:\/\/enterpriseam.com\/egypt\/2022\/10\/19\/catalyst-launches-corporate-venture-arm\/","url_meta":{"origin":565470,"position":2},"title":"Catalyst launches corporate venture arm","author":"enterpriseam admin","date":"19 October 2022","format":false,"excerpt":"Impact investor Catalyst Partners has launched a corporate VC arm, dubbed Serv Startup. The unit will look to acquire minority stakes primarily in the fintech and digital lending sectors, Chairman Maged Shawky told Enterprise. Serv Startup is looking at early-stage startups that have already developed minimum viable products, he said.\u2026","rel":"","context":"In &quot;Private equity&quot;","block_context":{"text":"Private equity","link":"https:\/\/enterpriseam.com\/egypt\/category\/industries\/private-equity\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/ent.news\/internal\/536550.png?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]},{"id":553486,"url":"https:\/\/enterpriseam.com\/egypt\/2021\/12\/06\/the-uaes-chimera-just-bought-a-stake-in-gemini-plus-b-investments-acquires-take-in-egyptian-ivf-center\/","url_meta":{"origin":565470,"position":3},"title":"The UAE\u2019s Chimera just bought a stake in Gemini. Plus: B Investments acquires take in Egyptian IVF Center","author":"enterpriseam admin","date":"6 December 2021","format":false,"excerpt":"The UAE\u2019s Chimera bought 25% of Sawiris\u2019 Gemini Global Development in a USD 100 mn transaction? Abu Dhabi-based investment firm Chimera Investment completed an acquisition of a 25% stake in Sawiris family-owned\u00a0 firm Gemini Global Development Egypt, multiple sources with first-hand knowledge of the transaction confirmed to Enterprise. Look for\u2026","rel":"","context":"In &quot;Investment Watch&quot;","block_context":{"text":"Investment Watch","link":"https:\/\/enterpriseam.com\/egypt\/category\/investment-watch\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/ent.news\/2021\/12\/231.jpg?fit=%2C&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]},{"id":562906,"url":"https:\/\/enterpriseam.com\/egypt\/2021\/06\/10\/138-pyramids-to-set-up-sme-focused-pe-firm\/","url_meta":{"origin":565470,"position":4},"title":"138 Pyramids to set up SME-focused PE firm","author":"enterpriseam admin","date":"10 June 2021","format":false,"excerpt":"Egyptian VC outfit 138 Pyramids will set up an SME-focused private equity company after it yesterday got the go-ahead from the Financial Regulatory Authority (FRA), Chairman Nevine El Tahri told us, confirming a local press report. The Pyramid Private Equity Company will be established with EGP 10 mn in initial\u2026","rel":"","context":"In &quot;Investment Watch&quot;","block_context":{"text":"Investment Watch","link":"https:\/\/enterpriseam.com\/egypt\/category\/investment-watch\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/ent.news\/2021\/6\/150.jpg?fit=%2C&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]},{"id":543955,"url":"https:\/\/enterpriseam.com\/egypt\/2022\/02\/27\/egypt-launches-new-world-bank-backed-usd-50-mn-vc-fund\/","url_meta":{"origin":565470,"position":5},"title":"Egypt launches new World Bank-backed USD 50 mn VC fund","author":"enterpriseam admin","date":"27 February 2022","format":false,"excerpt":"MSMEDA partners with World Bank to launch USD 50 mn VC fund: The Micro, Small and Medium Enterprise Development Agency (MSMEDA) has launched a venture capital fund with USD 50 mn from the World Bank, according to a press release. Trade Minister and MSMEDA Executive Director Nevine Gamea announced the\u2026","rel":"","context":"In &quot;Startup watch&quot;","block_context":{"text":"Startup watch","link":"https:\/\/enterpriseam.com\/egypt\/category\/companies\/startup-watch\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/ent.news\/2022\/2\/372.jpg?fit=%2C&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]}],"_links":{"self":[{"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/posts\/565470","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/comments?post=565470"}],"version-history":[{"count":0,"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/posts\/565470\/revisions"}],"acf:post":[{"embeddable":true,"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/afternoon\/565458"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/media\/565471"}],"wp:attachment":[{"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/media?parent=565470"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/categories?post=565470"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/tags?post=565470"},{"taxonomy":"brand","embeddable":true,"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/brand?post=565470"},{"taxonomy":"newspack_spnsrs_tax","embeddable":true,"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/newspack_spnsrs_tax?post=565470"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}