Private equity or venture capital: the same fund structure, opposite ways to lose money

What is the difference between private equity and venture capital?

Private equity and venture capital use the same fund structure, but venture capital buys minority stakes in young companies, many not yet profitable, while private equity typically invests in mature companies, using borrowed money alongside the fund’s capital. The descriptions below come from UK Private Capital (formerly the BVCA), the UK industry body, on its pages on private equity and venture capital, with US rules on debt.

	Venture capital	Private equity
Fund structure	Often a limited partnership managed by a general partner, with money committed by institutions such as pension funds and drawn down over several years	The same
Fund life	Initial life usually 10 or more years	Initial life usually 10 or more years; investments typically held for 4 to 7 years
Companies	Seed, start-up and early stage; many, if not most, not yet making a profit	Mature companies, typically through management buyouts and buy-ins
Stake	Minority stakes, very often alongside other investors	Minority or majority equity stakes
Debt	To count as a venture fund under US rules, a fund may not borrow more than 15% of its committed capital, and then for no more than 120 days (17 CFR 275.203(l)-1)	Borrowed money alongside the fund’s equity
Manager’s pay	Fixed revenue not tied to performance, plus carried interest once returns pass a hurdle rate, which UK Private Capital puts at typically around 8%	The same structure; the amounts differ (see the pay section)
Where returns come from	A few outliers: about 6% of investments produced about 60% of returns (Horsley Bridge data from 1985, published 2015)	A broader base: the median investment returned 1.25x gross (Cambridge Associates, funds of 1986 to 2014 vintages)
How it loses money	Often: almost two-thirds of financings from 2004 to 2013 returned less than cost (Correlation Ventures)	Less often, but debt raises the risk of bankruptcy

The fund is the same, so the structure of pay is too. Metrick and Yasuda’s 2010 study of 238 funds raised from 1993 to 2006 estimated, with a model of the funds’ contract terms, that about two-thirds of managers’ expected revenue came from fixed components not sensitive to performance. The return and loss rows are sourced in the next two sections, and more on the buyout side is in our private equity section.

How often do venture capital and private equity investments lose money?

Venture capital investments lose money more often than private equity investments, although the worst private equity funds come close: in the two portfolio-wide venture studies below, more than 40% (Commonfund, older vintages) to almost two-thirds (Correlation Ventures, 2004 to 2013) of venture investments returned less than cost, against 26% of investments in top-quartile private equity funds and 55% in bottom-quartile ones.

Measure	Venture capital	Private equity
Returned less than cost	Almost two-thirds of more than 21,000 financings, 2004 to 2013 (Correlation Ventures); more than 40% of portfolio companies in older vintages (Commonfund)	26% of investments in top-quartile funds; 55% in bottom-quartile funds (Cambridge Associates, 1986 to 2014 vintages)
Written off entirely	Up to 20% of portfolio companies in older vintages (Commonfund)	6% in top-quartile funds; 12% in bottom-quartile funds
Large winners	About 4% of financings returned more than 10x (Correlation Ventures)	28% of investments in top-quartile funds returned more than 3.0x; 8% in bottom-quartile funds
By stage	Typical loss rate of 65% at early stage, an Industry Ventures estimate (2017; its earlier article estimated about 35% to 70%), and less than 30% at later stage (PitchBook, cited by Industry Ventures)	No comparable figure found

The definitions differ, so compare with care. Correlation Ventures’ study, reported on Seth Levine’s VC Adventure blog in 2019, counts financings. Commonfund’s 2023 analysis of its 35 years of venture investing counts portfolio companies. Cambridge Associates’ 2017 analysis of 27,315 investment positions in 1,703 funds counts investments gross of fees in growth equity, buyout, mezzanine and energy funds, with venture capital excluded.

Venture capital accepts those losses because the winners are so large. Andreessen Horowitz’s 2015 analysis of Horsley Bridge data, covering the hundreds of venture funds Horsley Bridge had invested in since 1985, found that about 6% of investments, representing 4.5% of dollars invested, generated about 60% of total returns. The best funds did not get there by avoiding losses.

...the great funds lose money more often than good funds do.

Private equity’s lower loss rates may be flattered. A 2024 study published by the University of North Carolina’s Institute for Private Capital by Maria Borysoff (Nykyforovych) and Gregory Brown found unusually few buyout deals with multiples just below 1.0x and unusually many at or just above it, consistent with managers avoiding reported losses. Working from deal activity for 1,038 funds from 1986 to 2018, the authors found that funds reporting a 15% loss ratio raised on average $171 million less than funds reporting 5%, George Mason University reported in April 2024.

Why do venture-backed start-ups and buyouts fail in different ways?

Venture-backed start-ups mostly fail by running out of capital, while buyouts are written off less often in the data above but carry debt that raises the chance of bankruptcy. CB Insights’ March 2026 analysis of 431 venture-backed companies that shut down since 2023 found that 70% of the 385 with identifiable causes ran out of capital, and 43% had poor product-market fit. CB Insights calls running out of capital the final cause rather than the root problem, and companies could cite more than one reason.

A buyout adds a risk that venture capital largely avoids. Ayash and Rastad’s study, published in Finance Research Letters in 2021, tracked 484 leveraged buyouts and matched control firms for ten years and found that the buyout increased the target’s probability of bankruptcy by approximately 18%. An earlier version, covering buyouts of publicly traded US companies in deals of $50 million or more from 1980 to 2006, found that about 20% went bankrupt within ten years against 2% of the matched firms, Institutional Investor reported in July 2019.

The Bank of England’s July 2025 Financial Stability Report said key vulnerabilities in private markets arise from high leverage, opacity, potential conflicts of interest around valuations and strong interconnections with riskier credit markets such as leveraged loans, and said the private market ecosystem remained largely untested in a period of sustained higher interest rates and weaker growth.

Which is better, private equity or venture capital?

Neither private equity nor venture capital is simply better: buyout funds have beaten public markets more consistently, while venture capital’s record has swung by decade and depends more on the manager. Harris, Jenkinson and Kaplan’s 2012 NBER analysis of nearly 1,400 US buyout and venture funds, using Burgiss data from over 200 institutional investors, found that average buyout fund performance exceeded public markets for most vintages, beating the S&P 500 by an average of 20% to 27% over the life of the fund and more than 3% a year. Average venture funds outperformed public equities in the 1990s and underperformed them in the 2000s.

The gap between good and bad managers is wider in venture. Canterbury Consulting’s 2021 analysis of PitchBook data on 3,368 funds raised from 2002 to 2017 found that venture had the highest dispersion and standard deviation of the strategies it studied: a standard deviation of 34.2%, against between 17.0% and 21.1% for buyout and four other strategies. A bottom-quartile venture fund returned a net IRR of 0.8% or less, a top-quartile one 19.9% or more.

Backing a proven manager also works better in venture. Harris, Jenkinson, Kaplan and Stucke’s 2020 NBER study, using Burgiss cash-flow data to June 2019, found that venture fund performance persists even on the information available when a manager raises its next fund, while for post-2000 buyouts the conventional wisdom of backing previously top-quartile funds does not hold.

For a career, the better choice depends on which craft suits you, and on pay, both covered next.

What pays more, PE or VC?

The best public evidence shows buyout firms earning more revenue per partner than venture capital firms, but it measures firm revenue rather than individual pay, and we found no free public survey that compares individual pay in the two on the same basis. Metrick and Yasuda’s 2010 study of 238 funds raised from 1993 to 2006 found that buyout managers grew their funds faster than venture managers, which led to significantly higher revenue per partner and per professional in later buyout funds, and said its results suggest that the buyout business is more scalable. About two-thirds of expected revenue in the study came from fixed components not sensitive to performance, which suggests that much of a bigger fund’s extra revenue does not depend on how the fund performs.

Pay at the top still tracks firm size. Heidrick & Struggles’ November 2025 survey of 656 North American private equity investment professionals found that upper-quartile total cash compensation tended to scale with assets under management in 2024.

Venture pay has a different shape. Because a few investments produce most of the returns, carried interest in venture depends on whether the fund holds one of them. The one North American survey we found that covers both, MM&K’s annual report produced with Holt, is sold rather than free to read, so treat any headline comparison with care unless it states its sample.

Can you go from VC to PE?

Going from venture capital to private equity means learning a different craft, and we found no public data on how often people make the move. Gompers, Kaplan and Mukharlyamov’s 2015 NBER survey of 79 private equity investors managing over $750 billion found that they rely primarily on IRR and multiples to evaluate investments, and base capital structure equally on trade-off and market-timing considerations. Gompers, Gornall, Kaplan and Strebulaev’s 2016 NBER survey of 885 venture capitalists at 681 firms found that they see the management team as more important than product or technology, and rate deal selection above deal sourcing and post-investment value-added.

So a venture investor moving to buyouts has to learn debt, capital structure and valuation by returns and multiples, and a buyout investor moving the other way has to learn to judge founders and live with frequent losses. Later-stage venture sits closer to private equity: Industry Ventures, a venture investor, estimated in a 2017 article that the typical early-stage loss rate is 65% (its earlier article put early-stage fund losses at approximately 35% to 70%) and cited PitchBook for a later-stage rate of less than 30%, and Cambridge Associates counts growth equity as private equity.

On whether venture capital or private equity is harder to get into, we found no published hiring or acceptance rates for either, so treat any claim that one is harder as anecdote.

How do the UK and the US treat private equity and venture capital differently?

The UK and the US differ most in law and tax: US law defines a venture capital fund partly by how little it borrows, while the UK changed the tax on carried interest from 6 April 2026. Under US federal law, an adviser solely to venture capital funds is exempt from registration, while the exemption for advisers only to other private funds, such as buyout funds, applies only below $150 million of assets under management in the United States. To count as a venture fund under 17 CFR 275.203(l)-1, a fund may not borrow more than 15% of its committed capital, and then for no more than 120 days, and no more than 20% of its capital, leaving aside short-term holdings, may sit outside qualifying investments: broadly, equity bought directly from qualifying companies, which must not borrow in connection with the fund’s investment and pass the proceeds to the fund.

HMRC’s July 2025 policy paper sets out that from 6 April 2026 UK carried interest is treated as trading profits subject to income tax and Class 4 National Insurance contributions, on 72.5% of qualifying profits. In the US, section 1061 of the tax code, which covers partnership interests held in connection with the performance of services, treats gains on them as long-term only where the asset has been held for more than three years, as the IRS explains.

For UK private investors, the tax-advantaged route into venture changed on the same date: income tax relief on Venture Capital Trust investments fell from 30% to 20% from 6 April 2026, according to HMRC’s November 2025 policy paper.

UK Private Capital reports £25.0bn invested in 1,434 UK companies by private equity and venture capital in 2025 and, separately, £8 billion invested in UK venture-stage businesses in 2025 by venture capital general partners alongside corporates and other financial investors.

What this means if you are choosing between them

Choosing between private equity and venture capital, as an investor or for a career, means choosing how you are prepared to lose money, so judge each by its losses rather than by the structure the two share. Four questions follow from the data above, offered as general information rather than advice:

• How is the loss ratio counted: by number of investments or by money, and gross or net of fees? Cambridge Associates’ figures are gross, before fees and carried interest.
• How many exits came in at or just above 1.0x? Borysoff and Brown found buyout managers bunching them there.
• In venture, which holdings could return the fund? In Horsley Bridge’s data from 1985, published in 2015, about 6% of investments produced about 60% of returns.
• In a buyout, how much debt does each company carry, and when must it refinance?

Is loss ratio actually a good measure to use when we are assessing riskiness?

For a career, the choice is between crafts: venture rewards judging founders and tolerating frequent losses, and private equity rewards work on capital structure, governance and growth.