PE money is no different from VC money in that it is an investment in private companies. The biggest difference is that PE firms usually have a majority stake i

PE money is no different from VC money in that it is an investment in private companies. The biggest difference is that PE firms usually have a majority stake in the business they invest in (usually 51% or more) and effectively means they "own" the company. For VC, it's almost entirely a minority stake (at most maybe 30%). Most PE firms do what's called a Leverage Buyout (LBO) which means companies are bought like houses with a significant chunk of the capital provided for by investment banks. So, let's say Acme Co (made up company) is bought by a PE firm for $100M and now the PE firm owns 51% of Acme. The PE firm usually puts in (let's say) $20M from it's own fund and an investment bank puts in $80M. In 5-7 years the PE firms sells the company for $200M. They pay back the remainder of their loan of $80M to the investment bank (plus interest and some would have already been paid back by profits) and then they get a return on their investment in the form of carry. PE follows a similar business model as VC using it's 2-and-20 rule on their returns (2% management fees + 20% carry).