Funding Growth: When Private Equity Makes More Sense Than Venture Capital
- Dr Allen Nazeri DDS MBA
- May 29
- 4 min read
For founders and business owners looking to scale quickly, access to capital is often the single greatest accelerator—or roadblock—to success. But not all capital is created equal. The decision between accepting venture capital (VC) or partnering with private equity (PE) can shape the trajectory, culture, and exit strategy of your business. In this article, we explore the strategic differences and help you decide when private equity might be the better fit for funding growth.
Funding Growth: Understanding the Key Differences Between VC and PE
At their core, both VC and PE are designed to inject capital in exchange for equity. But their models, expectations, and approaches vary significantly:
Venture Capital is typically geared toward early-stage companies with high growth potential. VCs invest in innovation, accept higher risks, and often take minority positions.
Private Equity focuses on more established, cash-flow-positive businesses. PE firms tend to acquire controlling interests and are heavily focused on operational efficiency and value creation.
This distinction is crucial when evaluating the right partner for funding growth.
Funding Growth: When Venture Capital Is the Right Fit
Venture capital is ideal for:
Startups and early-stage companies with little to no revenue.
Businesses developing disruptive technologies or entering new markets.
Founders who are willing to dilute ownership significantly in exchange for rapid acceleration.
Teams who need active mentorship from sector-specific VCs with deep networks.
However, VC funding often comes with a “growth at all costs” mentality. This model demands rapid scaling, often with expectations of a 10x return. If your business doesn’t follow a hyper-growth curve, you may find yourself misaligned with your investors.
Funding Growth: When Private Equity Makes More Sense
Private equity is often misunderstood as only applicable to large corporations or distressed turnarounds. In reality, it can be the ideal capital partner for lower to middle-market companies that have:
Consistent revenue and EBITDA (typically $2M+).
A desire to scale through acquisition, vertical integration, or geographic expansion.
An owner or founder considering partial liquidity while still retaining meaningful equity and influence.
Operational infrastructure in place but needing strategic support to optimize and grow.
For healthcare practices, dental groups, diagnostic labs, and medical device firms—PE funding can offer transformational growth with less dilution than VC.
Funding Growth: Why PE May Align Better With Founders’ Goals
Let’s break down a few strategic advantages:
Retain More Ownership: PE deals often include recapitalization strategies where founders take chips off the table now and roll equity into the newco.
Operational Expertise: PE firms typically bring in industry veterans, systems, and scalable playbooks—especially useful in fragmented industries like healthcare.
Defined Exit Path: A typical PE investment comes with a 3–7 year roadmap for value creation and a second sale (or recap), offering founders a structured exit opportunity.
A founder with a profitable company and a 3–5 year growth runway may find PE to be a more sustainable and aligned partner for funding growth.
Funding Growth: Case Study Comparison – VC vs. PE Outcomes
Let’s compare two similar companies in different funding models:
Case A – Venture Capital-Backed SaaS Startup
Pre-revenue at time of Series A.
Raised $5M for 25% equity.
Grew rapidly but burned cash.
6 years later: Sold for $30M. Founders walked away with $3–5M after multiple rounds of dilution.
Case B – Private Equity-Backed Healthcare Company
$8M revenue, $2M EBITDA.
Partnered with PE at 7x EBITDA valuation.
Founder took $7M upfront and retained 30%.
4 years later: Business sold for $45M. Founder netted an additional $13.5M.
For companies with traction and cash flow, PE often provides a better path for both funding growth and creating generational wealth.
Funding Growth: Questions to Ask Before Choosing VC or PE
Ask yourself:
Is my business pre-revenue or profitable?
Do I want mentorship or operational horsepower?
Am I looking for capital only—or a strategic partner?
How much ownership am I willing to give up?
What is my ideal exit timeline?
Your answers will help guide the right type of capital partner for your journey.
Funding Growth: Final Thoughts on Choosing the Right Partner
Funding growth is not just about raising money—it's about choosing a partner that aligns with your stage, your vision, and your exit strategy. While venture capital makes sense for bleeding-edge innovation and early-stage scale, private equity can be a far more aligned choice for companies with proven models seeking to accelerate growth without sacrificing control.
If you're exploring a partial exit, recapitalization, or scaling via acquisition, private equity may be your best path forward.
Dr. Allen Nazeri, aka "Dr. Allen," boasts over 30 years of global experience as a healthcare entrepreneur. He is the Managing Director at American Healthcare Capital and Managing Partner at PRIME exits. Dr. Allen provides strategic growth consulting to leadership teams of both privately held and publicly listed companies, ensuring their preparedness for successful exits.
He holds a Dental Degree from Creighton University and an MBA in M&A and Investment Banking from the University of Bedfordshire. Dr. Allen is the author of "Value Engineering: Strategies to 10X the Value of Your Clinic and Dominate the Market!" and the brand new book "Selling Your Healthcare Company at a Premium". Dr. Allen offers a free valuation to business owners ready for a partial or complete exit strategy. Dr. Allen collaborates with strategic buyers, private equity firms, and institutional investors, taking direct accountability for the annual successful sell-side representation of nearly $750M in enterprise value.
To have a confidential discussion about your company and receive a free valuation, please email Allen@ahcteam.com or Allen@ahcpexits.com
You can now communicate with Dr. Allen's clone https://www.delphi.ai/drallen
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