There seems to be some confusion among pet industry entrepreneurs between the terms “Venture Capital” and “Private Equity”. They are often used interchangeably, when in fact these two methods of gaining access to capital are quite different. Given the number of times I hear people confuse the terms, I thought it time I clarify the difference.


Technically, Venture Capital (VC) is a subset of private equity in that it is money invested in private (versus public) companies. But that is pretty much where the similarity ends.

VC’s invest in very early stage companies, sometimes pre-revenue, and focus on high-tech, biotechnology, IT, and software. Rarely do VC’s invest in consumer products companies. Why? Because when a high-tech company hits a home run, the valuation will skyrocket to a high multiple of REVENUE. I’ve seen software companies valued at 10 to 20 times revenue…and more. In a consumer product business like pet products, a home run would result in a high multiple of CASH FLOW or EBITDA. Usually in the 8 to 12 times range. This rate of return doesn’t justify the significant risks that Venture Capital firms take by investing so early stage.

A VC fund expects to earn a return on a very small percentage of their investments. The typical venture capital investment occurs after the seed funding round as the first round of institutional capital to fund growth (also referred to as Series A round) in the interest of generating a high return through an eventual realization event, such as an IPO or trade sale of the company. In addition to angel investing and other seed funding options, venture capital is attractive for new companies with limited operating history that are too small to raise capital in the public markets and have not reached the point where they are able to secure a bank loan. In exchange for the high risk that venture capitalists assume by investing in smaller and less mature companies, venture capitalists usually get significant control over company decisions, in addition to a significant portion of the company’s ownership (and consequently value).


In simplest terms, private equity (PE) is capital that is invested in private companies. By private companies, I mean companies whose ownership shares or units are not traded publicly, because the owners want to restrict the number and/or kinds of people who can invest in them. PE investors tend to target fairly mature companies, which in some cases may be under- performing or under-valued, with the goal of improving their profitability and selling them for a return on their investment (capital gain) — or in some cases, splitting them apart and selling their assets at a profit.

PE has shown great interest in the pet industry, and currently there are more PE funds looking to invest in pet companies then there are pet companies looking for PE investment. I know this because, as an Investment Banker specializing in the pet industry, I get no less then two requests per week from PE firms looking to invest in the pet industry.

The challenge for pet companies is that PE generally won’t invest in companies with less then $2 million in EBITDA and most prefer at least $3 to $5 million in EBITDA – a fairly small population of companies in our industry. This is because they have to invest a minimum amount in each transaction, and it’s not worth it if the transaction is too small.

A PE firm will typically hold a company in their portfolio for 3 to 5 years. The goal is to triple or quadruple the value of their investment during that time, and be able to generate a nice return for their investors. A recent PE transaction in the pet industry occurred in July 2014 when Frontenac Partners of Chicago, IL made an investment in Cloud Star pet treats of San Luis Obispo.

Mark Kachur, the former CEO of CUNO, a company that was acquired for over a billion dollars described it like this: “I consider private equity and venture capital as opposites. In private equity, you start with the numbers, and then you try to fit everything into the numbers. In venture capital, you start with people, and then you try to figure out what numbers you can make.”

In summary, VC is generally not available to us in the pet industry unless your product is technology focused and has the potential to skyrocket into the universe. PE is available for companies generating $2 million+ in EBITDA. I’ve seen funds that would consider less, but those are few and far between. The good news? All that PE money chasing pet companies has resulted in high demand and high valuations.

Carol Frank of Boulder, CO, is the founder of four companies in the pet industry. As a Managing Director at SDR Ventures Investment Bank, she is a registered Investment Banker and leads the team in executing pet industry transactions including mergers and acquisitions, capital formation and strategic advisory services. She is also the owner of BirdsEye Consulting, the consummate source for pet sector consulting expertise. She can be reached at