The shared mechanism

#Sell-side versus buy-side

Investment banking is the sell-side: an investment bank advises companies and governments on raising capital or executing M&A, and earns a fee for the advice — typically a percentage of the deal or transaction value, paid by the client. The bank puts its own balance sheet at risk in some businesses (trading, underwriting commitments), but the M&A and capital-markets advisory work most analyst recruiting is aimed at is a service business: the bank is paid for expertise and execution, not for being right about which companies will do well. [Established] — this is the plain description on any bulge-bracket bank's own investment-banking division page.

Private equity and venture capital are both buy-side: they are principal investors. A PE or VC fund raises a pool of capital from outside investors, deploys it into companies it takes an ownership stake in, and makes its money from the fund's investment performance — not from advisory fees paid by a client. This is the single biggest structural difference between IB and the other two tracks, and it's why the skills, the recruiting process, and the actual day-to-day work diverge sharply past the analyst level. An IB analyst's job is to build the materials and models that support someone else's decision; a PE or VC investor's job is to make the decision and live with the outcome in the fund's own returns. [Established]

#The fund vocabulary PE and VC share — and where they diverge

Both PE and VC funds are structured as limited partnerships: the firm running the fund is the General Partner (GP), and the outside investors who supply the capital — pension funds, university endowments, sovereign wealth funds, insurance companies, wealthy individuals, and increasingly funds-of-funds — are Limited Partners (LPs). LPs don't hand over the full committed amount up front; the GP draws it down over time via capital calls as it finds deals to fund. A fund typically has a stated life of around ten years, split into an investment period (the first several years, when new deals get done) and a harvesting period (when the fund exits its positions and returns capital to LPs). [Established] — this structure is standard across the private-markets literature; Andrew Metrick and Ayako Yasuda's "The Economics of Private Equity Funds" (Rodney White Center working paper 17-07, Wharton) documents it formally and is the source this course leans on for the fee and carry mechanics covered in Module 07.

Both track types charge a management fee (commonly around 2% of committed capital annually) plus carried interest — a share, commonly 20%, of the fund's profits above a return threshold — and both use the term "2 and 20" as informal shorthand. [Directional] — actual fee levels vary by fund size, strategy, and vintage, and Metrick and Yasuda's own dataset shows a real spread around that 2%/20% norm rather than universal uniformity.

Where PE and VC diverge sharply is in what the capital actually buys and how returns get distributed across a portfolio — a PE fund typically buys control of a small number of larger, cash-generative companies using significant debt, where a VC fund buys small minority stakes in a large number of very early, often pre-revenue companies with no debt involved at all. That difference in what's being bought is the reason Module 07 and Module 08 end up describing what looks like the same "2 and 20" language producing two completely different investment behaviors — a PE fund optimizing for a small number of individually decent outcomes across most of its portfolio, a VC fund optimizing for the one or two enormous winners that will carry the entire fund. [Established] for the buy-what difference; [Directional] for exactly how much that difference is the explanation for the resulting behavioral gap versus one input among several.

#How the three fields actually connect

Investment banking is not "the easy way in" to PE and VC the way some recruiting content implies — but it is the dominant pipeline into private equity specifically, and Module 05 covers exactly why. In short: a two-to-three-year IB analyst program is, in practice, the market's way of training and pre-screening exactly the modeling and deal-process skills a PE associate needs on day one, at the bank's cost rather than the fund's. [Directional] — this is a consistent characterization across practitioner sources on PE recruiting, not a claim any single firm states as its stated hiring rationale in writing.

Venture capital does not run on the same pipeline. There's no VC equivalent of "the IB analyst program is the training ground" — VC hiring is scarcer, smaller-team, and driven far more by network and by operator credibility (having actually built or worked at a startup) than by a standardized technical-training background. Module 09 covers why that's true and what it means for how you'd actually approach getting into VC versus IB or PE. [Directional]

The rest of this course treats each track on its own terms rather than forcing one funnel narrative across all three — starting with investment banking, the best-documented and most standardized of the three, in the next module.