Should I Trust Advice From A Late Stage Private Equity Firm When I’m Still An Early Stage Company?

No, I would not. But it depends on the person of the firm dispensing the advice and their wherewithal of how private equity differs so fundamentally from venture capital. It also depends greatly on what type of innovation you aim to pursue. Let me assume you at least seek to change the world for the better and deserve a prime investor.

Even though venture capital is considered a sector of the private equity asset class, venture capital, and private equity could not be more different in the type of assets, they aim to capitalize on, and the risk carried by each. They are diametrically opposite, and precisely the reason why venture capital should not be treated like private equity and taken out of the private equity asset class to produce success.

Simply put, venture capital is investing in unprecedented foresight to yield outlier returns, while private equity is investing in regurgitation of hindsight with more predictable but lower multiples.

Different ways of putting it are; venture capital is supposed to invest before-the-chasm, private equity invests post-chasm (from “Crossing the Chasm” by Geoffrey Moore). Venture capital is supposed to pursue the unprecedented upside of innovation; private equity invests using the protection of downside as its guide. Venture capital is supposed to invest in upstream innovation; private equity funds downstream innovation.

Notice how I excessively refer to “venture capital is supposed to” in the previous paragraph. Venture capital, by excessive collusion, deal fragmentation, and deal syndication, has turned into a subprime hedge and has for years now deployed a micro-private-equity risk profile unable to find groundbreaking innovation worthy of producing much renewable socioeconomic value to society. So, as your question indicates, the lines between venture capital and private equity are precariously blurred, confounding many. As in the TV show, Shark Tank referring to their investment strategy as venture capital, while it does nothing of the sort.

So indeed, you should test the person you spoke with on the recognition of the differences between the investment vehicles and let him/her know you might be interested in the advice once your company has crossed the chasm, and you may need some growth runway.

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