Private Equity vs Investment Banking
A comprehensive comparison of services, business models, and use cases to help you understand which financial partner is right for your needs in 2025
Quick comparison
Compare key aspects and services
- Aspect
- Investment Banking
- Private Equity
What is Investment Banking?
Investment banking is a financial service that acts as an intermediary between companies and capital markets. Investment banks advise corporations, governments, and institutions on complex financial transactions including mergers and acquisitions, IPOs, debt offerings, and restructurings. They don't invest their own capital but rather facilitate deals and provide strategic advisory services for fees.
Core Services:
- • Mergers & Acquisitions (M&A) advisory
- • Capital raising (equity and debt)
- • IPO underwriting and execution
- • Financial restructuring and bankruptcy advisory
- • Valuation and fairness opinions
- • Strategic advisory and market insights
What is Private Equity?
Private equity is an investment model where firms pool capital from institutional investors and high-net-worth individuals to acquire controlling stakes in private companies. Unlike investment banks, PE firms deploy their own capital and actively work to improve portfolio companies' operations, strategy, and profitability over 3-7 years before selling for a return.
Core Activities:
- • Acquiring majority or controlling stakes in companies
- • Leveraged buyouts (LBOs) and growth equity investments
- • Operational improvements and cost optimization
- • Strategic repositioning and add-on acquisitions
- • Board governance and management oversight
- • Exit strategy execution (IPO, strategic sale, secondary)
Fee structure and costs
How each model generates revenue
Investment Banking Fees
Transaction-based advisory fees
- M&A Advisory1-3% of deal value
- IPO Underwriting3-7% of proceeds
- Debt Financing0.5-2% of amount raised
- Restructuring AdvisoryMonthly retainer + success fee
- Fairness Opinions$500k-$2M+ flat fee
*Fees vary based on deal size, complexity, and competition
Private Equity Returns Structure
Fund economics (2 and 20 model)
- Management Fee2% of AUM annually
- Carried Interest20% of profits above hurdle
- Preferred Return (Hurdle)8% IRR to LPs first
- Transaction Fees1-2% (from portfolio companies)
- Monitoring Fees$500k-$2M+ annually
*PE firms earn from both fund investors (LPs) and portfolio companies
Key differences between Private Equity and Investment Banking
Understanding the main distinctions
Capital Commitment
Investment banks provide advisory services without deploying their own capital, acting as intermediaries. Private equity firms commit significant capital from their funds, taking on substantial risk and ownership stakes in companies.
Time Horizon
IB engagements are transaction-based, lasting 3-12 months from mandate to close. PE investments are long-term commitments spanning 3-7 years, requiring sustained involvement to create value.
Revenue Generation
Banks earn advisory and underwriting fees tied to transaction completion. PE firms generate returns through management fees and carried interest based on portfolio company performance and successful exits.
Client Relationship
Investment banks serve multiple clients simultaneously with transactional relationships. PE firms become partners and majority owners, working closely with management teams to drive operational and strategic improvements.
Value Creation Approach
Banks create value through deal structuring, optimal pricing, and efficient execution. PE firms drive value through operational improvements, strategic repositioning, add-on acquisitions, and leveraged returns.
Regulatory Environment
Investment banks face extensive SEC regulation, capital requirements, and public disclosure obligations. PE firms have lighter regulatory oversight but must comply with Dodd-Frank, SEC registration (if over $150M AUM), and LP reporting requirements.
Transaction process & timeline
How deals progress from start to finish
Investment Banking M&A Process
Sign engagement letter, assemble deal team, preliminary valuation
Create CIM, financial models, identify potential buyers, set up data room
Buyer outreach, management presentations, initial bids, shortlist creation
Full diligence process, Q&A management, negotiations, final bids
Purchase agreement execution, regulatory approvals, funding, close
Total Timeline: 6-9 months on average
Private Equity Investment Lifecycle
Proprietary deal flow, investment screening, initial meetings, LOI submission
Financial, operational, legal DD, Investment Committee approval, transaction close
100-day plan, operational improvements, cost optimization, management team enhancement
Strategic initiatives, add-on acquisitions, market expansion, EBITDA growth
Strategic sale, IPO, or secondary buyout preparation and execution
Total Hold Period: 4-7 years on average
The role of VDRs (virtual data rooms) in private equity and investment banking
How VDR private equity workflows streamline diligence, fundraising, and portfolio oversight
Investment Banking Data Rooms
Investment banks use virtual data rooms as the central hub for M&A transactions, IPOs, and capital raises. These secure platforms enable buyers and investors to conduct due diligence efficiently while maintaining confidentiality and control.
Key Use Cases:
- •Buy-side & Sell-side M&A: Organize financial statements, contracts, customer data, and legal documents for buyer due diligence
- •IPO Document Management: Manage prospectus documents, regulatory filings, and investor materials during roadshows
- •Capital Raising: Share confidential information memorandums (CIMs) with potential investors and track engagement
- •Deal Analytics: Monitor which documents investors review most, identify concerns early, and optimize deal timing
Private equity VDR
PE firms rely on a VDR throughout the entire investment lifecycle — from initial due diligence to portfolio company management and exit preparation. A VDR for private equity provides security, organization, and analytics at every stage, helping teams prioritize opportunities and protect sensitive information.
Key Use Cases:
- •Buy-side due diligence in a VDR: Review target company documents across financial, legal, operational, and commercial workstreams
- •Portfolio company management: Centralize board materials, monthly reports, and strategic plans for portfolio oversight
- •Add‑on acquisition tracking: Evaluate multiple acquisition targets simultaneously with organized deal pipelines
- •Exit preparation: Prepare comprehensive rooms for buyers showcasing portfolio performance and growth
Secure document sharing for PE and IB professionals
Papermark is the open-source document sharing platform trusted by investors and advisors worldwide
- Track who views your pitch decks, CIMs, and due diligence materials
- Custom branding, NDA requirements, and granular access controls
- Page-by-page analytics to understand investor interest and engagement
When to use each service?
Choose the right financial partner for your needs
Work with an Investment Bank when:
- You need to sell your company and want to maximize valuation through a competitive auction process
- You're raising capital (equity or debt) and need access to institutional investors and market expertise
- You're considering a strategic acquisition and need valuation analysis and deal structuring advice
- You're going public and require IPO underwriting and roadshow management
- You need an independent fairness opinion for board fiduciary responsibilities
- You want transaction expertise without giving up equity or control
Partner with Private Equity when:
- You're looking for growth capital plus operational expertise to scale your business
- You need a majority buyer for your company and want a partner that will drive value post-close
- Your company needs operational improvements, cost optimization, or strategic repositioning
- You want management team support, board expertise, and access to a portfolio network
- You're planning add-on acquisitions and need capital plus M&A execution capabilities
- You value long-term partnership (3-7 years) over transactional relationships
Frequently asked questions
Common questions about PE and IB services
Can a company work with both an investment bank and private equity firm?
Yes, this is common. An investment bank might advise your company on a sale process where the buyer is a private equity firm. Or, a PE-backed company might hire an investment bank to execute add-on acquisitions or prepare for an eventual exit through IPO or strategic sale.
How much does it cost to work with an investment bank vs private equity?
Investment banks typically charge 1-7% of transaction value depending on the service (M&A, IPO, debt financing). Private equity doesn't charge companies directly for capital - instead, they invest their fund's capital for an equity stake. PE-backed companies may pay ongoing monitoring fees ($500k-$2M+ annually) to the PE firm.
Do investment banks invest in companies like private equity firms?
No. Investment banks are advisors and intermediaries who facilitate transactions for fees but don't deploy their own capital into companies (except briefly during IPO underwriting). Private equity firms are principal investors who commit their fund's capital to acquire ownership stakes and drive value creation over multiple years.
Should I raise growth capital from private equity or use an investment bank to find strategic investors?
It depends on your goals. PE is ideal if you want operational expertise, board support, and a long-term partner (usually requires giving up majority control). Use an investment bank if you want to run a competitive process, maintain more control, or need help identifying and negotiating with multiple potential investors (strategic or financial).
What's the typical timeline for working with each?
Investment banking engagements are transaction-focused and typically last 6-12 months from mandate to close. Private equity relationships are long-term partnerships spanning 4-7 years from initial investment through exit. PE firms remain actively involved throughout the holding period, while banks exit once the transaction closes.