Day 11 Private Equity VS Venture Capital

Today is my eleventh day at CoreNetwork Fund. In the morning, I mainly did research on the differences and similarities between Private Equity and Venture Capital because when I was learning about VC, PE has always came across. Now I have seen what is it like working for a VC firm, I am interested in exploring the PE industry, and see what is it like to work in this career path.

For researching, I mainly used Investopedia and two packets that Bob gave me that were from annual meetings. After reviewing all materials, I thought a more visual way to explain the differences and similarities is a venn diagram (as you can see below).

The diagram covers the key differences and similarities between PE and VC. Since I had more experience learning about VC throughout the internship, I thought I would do more research on PE. After reading articles online about PE, I started getting tired so I watched a series of Private Equity Minute video featuring Dartmouth College’s Tuck School of Business Professor Colin Blaydon. The six-part series is a primer on the private equity model and how value is created for private equity-backed companies.

Something that confused but also interested me in PE is its structure and return distribution. It has a similar structure to VC, where there are limited partners and general partners. Limited partners put in capital for the investment while general partners manage the fund (make investment choice, structure the use of fund, and improve the operations). While the limited partners do not manage the fund (the general partners do), the general partners have a fiduciary responsibility to make returns for limited partners.

To me, it seems if general partners are doing all the work; however, when it comes to pay, the limited partners get paid first. But why? Because general partners love the work and their limited partners so much that they always sacrifice themselves? I couldn’t figure it out for a long time, so I asked Erik. He said the exact opposite, limited partners get paid first to prevent general partners make bad deals. In other words, if general partners get paid first, they could make a bad deal so that they would get the most money but there wouldn't be any left for the limited partners. Now I could see it why, but still I didn't know why would general partners make bad deals. I asked Erik, and he laughed a little, "I mean, it just happens." But that's not ethical, I said to myself.

In the afternoon, I started working on updating the website. Since I couldn’t speak the java language, I first started looking for ways to change the website without writing codes, which turned out that if so, I would work significantly slower and couldn’t do as much to change the design. (It wasn’t as easy as I thought it would be). The website login also did not work out well, so Betsy was working on changing the password before I could start. I realized that no matter how better I planned the day, little things as such could stop the process immediately and unexpectedly (which is OKAY).

So as my sponsor (Erik) suggested, instead of waiting for the login, I worked on the site mapping first. Site mapping was quite fun until my computer ran out of battery as well (today wasn’t so great); however, while getting a little frustrated, I saw the little white board in my room. Creativity flooded into the room, and of course I used the whiteboard to draw the site. When Nick Isaza interned here, he first built the website for the firm. However, the website only had one page, so the whole purpose for developing the website is to make it look more professional and to provide more information about the firm. Based on this purpose, I developed my site map as the following:

Not long after I finished the site mapping, it was around 5 P.M. already. Erik and I were both leaving so he would check the website mapping the next day in the morning.

Today I have reached my overall goal of learning How Venture Capital Works when I researched about the differences between VC and PE. By understanding the investment criteria difference between PE and VC, I satisfied my first goal of learning the VC factors of evaluating startups. As for my second goal of knowing the process of a VC deal, I reach it by looking at the investment stages in the VC packet. I also finished Venture Deals today, marking the achievement of my third goal of reading the book. However, I think the book’s complexity is worth coming back and re-read some of the chapters (as I couldn’t say I have mastered the materials yet). It’s a good start. There is only 2 more days at CoreNetwork left! I will continue to work on the web development more during the next 2 days.