Pictured: Jim Ferry, Partner at Volition Capital

Venture Capital vs. Growth Equity

The line between venture capital (VC) and growth equity has blurred over the years, especially when it comes to investment size. Many traditional growth equity funds have moved down market to access deal flow earlier in the company lifecycle – ideally to write larger checks as the business scales. Conversely, some early-stage VCs have raised growth funds for follow-on investments in their top-performing portfolio companies. The line blurs even further as some VCs have evolved into multi-stage megafunds with $10B+ under management. All of this has created confusion for founders. Two funds evaluating a Series A financing can have drastically different investment strategies, structures, and expectations.

As a result, founders often ask me: Is Volition a venture capital fund or a private equity fund? Technically, both fall under the umbrella of private equity (PE) – investments in private companies. But what they’re really asking is whether Volition’s strategy is more similar to VC or late-stage PE. As growth equity investors, we sit somewhere in the middle.

While many are familiar with VC’s high-risk, early-stage bets and PE’s focus on mature businesses with leveraged buyouts, growth equity plays a distinct role – helping companies scale at an inflection point. VC and growth equity investors may both target private companies, typically take minority stakes, and use preferred equity – but the mindset, approach, and playbook can be very different.

Understanding these differences is critical for founders looking to align their goals, operating philosophy, and growth trajectory with the right investment partner – and ultimately drive long-term value.

Traditional Venture Capital: Betting on Early Potential

Venture capital is built to fund innovation at its earliest stages. VCs typically invest in startups that may have little to no revenue but show high potential for scale. These businesses often operate in emerging or disruptive markets, where the upside is significant – but so is the risk.

This approach often prioritizes growth over profitability. The goal is typically to pursue hyper-growth at all costs with the hopes of achieving a power-law outcome, even if the fundamentals don’t support this strategy. In this approach, startups frequently raise successive rounds from other VCs or growth funds just to sustain operations. However, if a company does not have elite performance, capital quickly dries up and management will be stuck with many difficult decisions in short order.

With ~63% of tech startups failing within the first five years, VCs tend to build large portfolios, accepting high loss rates with the hope that a few big winners will carry overall returns. However, behind each failed investment, there are founders and management teams that have given their all to the business and then have nothing to show for it. Therefore, this is a mindset that may not align with founders looking to scale more sustainably.

Traditional Growth Equity: Scaling Without Risking the Business

Growth equity involves investing in companies that have moved past the highest-risk venture stage but are still in high-growth mode. These companies usually have proven business models, real revenue traction, and capital efficiency, but need funding to accelerate expansion.

Because these businesses tend to have product-market fit, they carry a lower risk profile than early-stage venture investments. This allows growth equity funds to operate with lower loss rates and take a more concentrated portfolio approach. With fewer investments, growth equity investors can devote more value-add resources to each company.

Another key distinction: growth equity deals may include a mix of primary and secondary capital. Primary capital fuels growth; secondary capital allows founders to take some chips off the table – a dynamic not always available in venture rounds.

When it comes to exits, growth equity-backed companies are not always reliant on future rounds. While many raise additional capital, they may also be on a path to self-sustainability, acquisition – or even an IPO.

Which Investor Fits Your Operating Philosophy

With the rise of multi-stage VCs and mega-funds, the traditional lines between VC and growth equity have blurred – especially at the Series A and B level. Both types of investors might lead a ~$20M round, but their philosophies can be drastically different. For founders, it’s not just about valuation – it’s about alignment. VC-led rounds often prioritize hyper-growth, aggressive market expansion, and future fundraising. That’s great for companies taking big swings and chasing speed, however, this can often times come with serious risk.

Growth equity, on the other hand, tends to be a better fit for founders focused on capital efficiency, strong unit economics, and sustainable scaling. These investors can take a more hands-on approach and often back companies either profitable – or on a clear path to break-even.

Understanding the motivations and underwriting philosophy that best matches your mindset and goals can make all the difference in choosing the right long-term partner.

The Volition Capital Approach

At Volition Capital, we back capital-efficient businesses — companies that have demonstrated real traction and value creation without depending on excessive early-stage funding. These are often founder-led teams with product-market fit and strong fundamentals. There is a desire to scale towards an outsized exit but doing so in a manner that does not risk the business.

We’re a fit for founders who want to retain meaningful ownership, avoid the pressure of constant fundraising, and partner with a team that brings more than just capital. Our concentrated portfolio means each company we work with is treated as a “portfolio of one” and has access to all of our value-add resources across hiring, finance, strategy, annual planning, and more.

If you are thinking about raising growth capital and share this philosophy make sure to reach out as I would love to connect. After all, an investor-founder relationship can last longer than most marriages — so choose your partner wisely with the same level of diligence.