By the end of the first half of 2025, private equity deals slowed due to tariff uncertainty, according to Bain’s 2025 Mid-Year Report. However, the industry still has plenty of capital and strong long-term prospects.
Amid experts’ forecasts of what the second half of the year can bring to the industry, let’s take a closer look at two major investment approaches: growth equity and private equity. While both fall under the same umbrella, they serve different purposes, target different companies, and follow distinct strategies that founders and investors should carefully evaluate.
This article outlines the key differences between growth equity and private equity and helps founders and investors decide which strategy best aligns with their goals.
What is private equity?
Private equity refers to investments made directly into privately held companies (those not traded on public stock exchanges). A private equity firm raises money from institutional investors, pension funds, and wealthy individuals, then uses that capital to acquire or invest in these companies.
Most private equity investments involve taking a controlling stake, often through a leveraged buyout (LBO). In this approach, the firm uses a mix of its own funds and borrowed money, with the acquired company’s assets used as collateral for the loan.Once a firm takes ownership, private equity investors work to increase the company’s value. This includes improving operations, entering new markets, streamlining costs, or changing leadership. Their aim is to sell the business later at a higher price, generating strong returns for their investors.
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What is growth equity?
Growth equity focuses on providing capital to high-growth companies that are already successful but need funds to scale further. These businesses typically have proven business models, steady revenue, and clear market demand, but require expansion capital to reach the next growth stage.
Growth equity firms typically acquire a minority stake in these high-growth companies. This strategy keeps the existing management team in place to foster stability. However, the company benefits from the investor’s expertise, network, and resources.
Growth equity investing often supports initiatives like entering new markets, launching additional products, or expanding production capacity. Because these companies are past the riskier startup phase, growth equity investments aim to balance high growth potential with lower operational risk compared to early-stage venture capital.
Is growth equity a part of private equity? Yes. Growth equity is a subset of private equity that focuses on minority investments in proven, high-growth companies, while traditional private equity often targets majority buyouts of mature businesses.
Growth equity vs private equity: Key differences
The primary difference between growth equity and private equity investment lies in the level of control and the company’s operational success. Growth equity offers minority investments in expansion-ready businesses, while private equity usually takes majority ownership of mature, but underperforming, or undervalued companies through leveraged buyouts.
More differences between these two investment strategies are specified in the table.
| Area | Growth equity | Private equity |
|---|---|---|
| Ownership | Minority stakes, founders retain control | Majority or full ownership, the firm drives decisions |
| Use of leverage | Little to no debt; capital is provided directly | Heavy use of leverage; acquisitions are financed with borrowed funds |
| Company stage | Growth-stage companies with proven business models | Mature, underperforming, or undervalued companies with stable cash flows |
| Founder role | Founders and management remain central to operations | Leadership changes are common; new executives may be appointed |
| Risk profile | Risk comes from scaling too quickly or market competition | Financial risk from leveraged buyouts, but operations are more predictable |
| Control | Investors offer guidance but don’t run daily operations | Firms take strong control and restructure operations |
| Capital use | Expansion capital for projects like product launches or new market entry | Used for acquisitions, restructuring, or taking companies private |
| Exit focus | Returns through IPOs or sales to strategic buyers | Returns through resale, secondary buyouts, or IPOs |
We focus on the other private equity vs. growth equity differences further.
Benefits and drawbacks of each strategy for founders
From a founder’s perspective, raising growth equity or private equity capital has very different outcomes. The strategy’s choice might affect autonomy, ownership dilution, and the company’s long-term trajectory.
Let’s see what pros and cons each investment strategy might bring to the business.
Private equity
Pros
- Large capital injection, useful for acquisitions or restructuring
- Operational expertise and resources to improve performance
- Founders can sell liquid assets or execute their exit strategy
- Can unlock value in underperforming or undervalued companies
Cons
- Significant loss of autonomy, as PE firms usually take majority control
- Greater chance of leadership changes, with founders often sidelined
- Heavily leveraged transactions increase the company’s financial risk
- Short- to medium-term focused returns may conflict with the founder’s vision
Growth equity
Pros
- Founders keep control since investors usually take minority stakes
- Provides expansion capital to scale products, markets, or operations
- Access to investor expertise, networks, and strategic guidance
- Aligns with long-term growth rather than immediate restructuring
Cons
- Investors issue new shares, which dilute the present management’s ownership
- Growth equity firms may still expect influence on key decisions
- Pressure to deliver rapid growth targets can create operational strain
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Investor involvement and value creation approaches
One of the most significant differences between growth equity and private equity is the level of involvement investors have in managing the company. The level of control and the approach to value creation depend on the type of capital provided.
- Growth equity investors
Growth equity firms conduct investments with a lighter touch. They typically hold minority stakes, allowing founders to retain control of daily operations. Instead of restructuring, growth equity funds focus on expansion by offering strategic advice, new market connections, and support for scaling proven business models.
- Private equity investors
Private equity firms often take majority ownership, which gives them authority over management decisions. They frequently restructure leadership, streamline costs, and use leveraged buyouts to increase efficiency. Their investment strategy centers on improving performance and profitability before selling off the business.
In short, growth equity offers support without disrupting leadership, while private equity investors take a hands-on role in reshaping the acquired company’s assets.
Deal structure, investment amount, and terms
The way firms structure deals in growth equity and private equity reflects the different roles investors play in a business.
- Growth equity
Deals usually involve minority stakes, with terms designed to let founders keep control. The investment amount is moderate, since the goal is to fund expansion projects rather than buy the company. Agreements often include governance rights, reporting requirements, and growth targets, but avoid heavy restrictions.
- Private equity
A private equity investment strategy typically involves buying a majority or full stake in a company. The investment amount is much larger, as firms often acquire the entire business using a mix of equity and debt. Terms are stricter, giving investors control over strategy, management decisions, and exit planning to drive returns from portfolio companies.
Negotiation process and due diligence
When raising capital, the negotiation process and level of due diligence differ significantly between growth equity and private equity deals.
- Growth equity
Negotiations typically focus on valuation, the size of the minority stake, and investor rights such as board representation or veto powers on major decisions. Founders should prepare financial statements, growth forecasts, and details about how to use the new capital. Due diligence centers on verifying the company’s growth potential, customer base, and scalability of its proven business model rather than restructuring needs.
- Private equity
A private equity investment strategy demands more complex negotiations, often involving purchase price adjustments, debt structures, and management incentives. Founders and boards should be ready for detailed discussions about control rights and potential leadership changes. Due diligence is more comprehensive, covering financial performance, operational efficiency, legal liabilities, and risks associated with portfolio companies. This process ensures the firm can unlock value and achieve its return targets.
In short, growth equity investors focus on validating future growth, while private equity firms dig into every detail to prepare for significant ownership and control.
Career paths: Growth equity vs. private equity
Let’s now take a look at what the job of specialists in private equity and growth equity looks like, how much they’re paid, and what their exit options are.
| Aspect | Growth equity | Private equity |
|---|---|---|
| Type of work |
|
|
| Team structure | Leaner teams, with associates and principals working closely with partners | Larger and more hierarchical teams, with clear roles from analysts up to managing directors |
| Day-to-day tasks |
|
|
| Average salary (Analyst) | $101,000 – $149,000 per year | $134,000 – $222,000 per year |
| Exit opportunities |
|
|
Get a full grasp of the career path in the private equity sector and private equity salaries in our dedicated articles.
Exit strategies and investment time horizon
Both private equity and growth equity firms aim to generate strong returns, but the timelines and exit strategies differ.
- Growth equity
Growth equity investors commonly hold their positions for 4–7 years. Common exits include an IPO, where the company goes public, or a strategic sale to a larger corporation looking to expand its reach. Secondary sales to other growth equity funds or venture capital firms are also common, especially if the company still has room to scale further.
- Private equity
Private equity firms tend to hold portfolio companies for 5–10 years, often depending on the private equity investment strategy. Their exits usually involve selling to another private equity fund, conducting a secondary buyout, or selling to a strategic buyer. Initial public offerings are less frequent but possible if market conditions are favorable.
Which is right for you (founder or investor)?
Choosing between growth equity and private equity depends on your role and goals. The right option comes down to company stage, control preferences, and return expectations.
Founders
- Choose growth equity if your company is generating revenue, has a proven business model, and needs expansion capital without giving up control. This path is most effective if you aim to remain active in leading the company while attracting partners to accelerate growth.
- Consider private equity if your company is mature, yet underperforming, or you’re seeking liquidity. This is often the right option if you’re open to giving up control, stepping back from operations, or even exiting entirely while ensuring the business has the resources for a turnaround or consolidation.
Investors
- Choose growth equity if your investment strategy focuses on scaling high-growth companies without taking on the risks of early-stage venture capital. Growth equity suits investors who prefer working alongside founders and targeting long-term market expansion.
- Opt for private equity if you want deeper control over portfolio companies and are comfortable with leveraged buyouts. A private equity investment strategy fits investors seeking opportunities in mature, undervalued businesses where operational improvements and financial restructuring can unlock returns.
Key takeaways
- Private equity targets mature, underperforming, or undervalued companies through majority ownership and leveraged buyouts, aiming to restructure and improve profitability.
- Growth equity is a subset of private equity that provides minority investments in proven, high-growth companies, offering expansion capital while founders retain control.
- The two differ in ownership, control, risk, capital use, and exit focus: growth equity supports scaling, while private equity emphasizes restructuring and efficiency.
- For founders, growth equity preserves autonomy but dilutes ownership, while private equity provides liquidity and expertise but often reduces control.
- For investors, growth equity aligns with long-term growth strategies, while a private equity investment strategy seeks value creation through buyouts and operational change.
