Private Equity (PE) and Venture Capital (VC) investment contracts have different characteristics, although their main objective is to foster the growth of companies through strategic capital contributions.
In the case of Private Equity, investments are directed at companies at an advanced stage of development, with consolidated positions in the market, but which are not listed on the stock exchange. These companies generally seek funds to expand operations, restructure debts or carry out high-impact strategies such as mergers and acquisitions. In this scenario, investors usually take an active role in management and governance, participating in strategic and operational decisions to optimize the performance and value of the invested company.
Venture Capital, on the other hand, is aimed at startups or companies at an early stage, which have high growth potential but also greater risk. The contributions are made in specific financing rounds - such as seed, series A or series B - with a focus on developing innovative solutions, scaling the business and opening up networks for the entrepreneurs.
The contractual instruments reflect the differences between the two models. In Private Equity, Share Purchase Agreements (SPA), Shareholder Agreements and Call Option Agreements are common. In general, these contracts involve the acquisition of a majority or full stake, giving the investor direct control over the management and strategic decisions of the investee company.
In Venture Capital, the most commonly used instruments include Investment Agreements, Convertible Loan Agreements and Share Subscription Agreements. In this model, the investor rarely acquires majority control, but seeks to influence strategic decisions through veto rights, presence on the board of directors or specific contractual clauses.
The due diligence approach also differs between the models. In Private Equity, due diligence is extensive and comprehensive, covering financial, legal and operational aspects, due to the greater maturity and complexity of the investee companies. In Venture Capital, due diligence tends to be more agile and focused on specific aspects of the investee company.
In short (there are countless differences that could be covered in this article), while Private Equity is aimed at mature companies with a focus on stability and value optimization, Venture Capital invests in the innovation and high growth of startups, taking on greater risks. It is essential that entrepreneurs, investors and advisors (whose hiring is highly recommended) understand the differences and risks associated with both investment models in order to act strategically in the capital markets.
The Corporate team at Barcellos Tucunduva Advogados is available to answer any questions on the subject. Contact us at societario@btlaw.com.br.
