“Private Equity vs. Venture Capital vs. the S&P 500” 9-15-25 - Becker Business

Becker Business Podcast Episode Summary

Episode: “Private Equity vs. Venture Capital vs. the S&P 500”
Host: Scott Becker
Date: September 15, 2025

Overview

In this short but information-rich episode, Scott Becker dives into a comparative discussion of investment strategies: Private Equity (PE), Venture Capital (VC), and investing in the S&P 500 index. Drawing on decades of market performance data and his personal experience, Becker breaks down the fundamental characteristics, risks, returns, and pros and cons of each approach. This episode arms listeners with a clear understanding of long-term performance trends, liquidity factors, and the realities behind common investor expectations.

Key Discussion Points & Insights

1. Definitions and Investment Philosophies (00:31 – 01:30)

Private Equity (PE):
- Invests in established, healthy companies with revenues and profits (EBITDA).
Venture Capital (VC):
- Focuses on early-stage companies, often pre-revenue or with minimal revenue.
S&P 500:
- Index representing 500 top U.S. public companies; buying in means wide diversification and liquidity.

"Private equity generally invest in relatively healthy companies that already have EBITDA or profits and revenues. Venture capital often invest pre revenues or early revenues before things are profitable. And then The S&P 500 of course is the index of all the SB 500 firms. And so you're buying a little piece of each of that." — Scott Becker [00:37]

2. Risk, Return, and Liquidity Trade-offs (01:31 – 03:10)

Long-Term Returns:
- VC perceived as highest risk and highest long-term returns.
- PE generally outperforms S&P 500 but with less margin than commonly thought.
- S&P 500 has steadier, lower risk, and highly liquid returns (historically 8-10% annually).
Short-to-Mid Term Reality:
- Over a 10-year period, PE and VC have barely outperformed the S&P 500—by roughly 1 percentage point, and with far less liquidity.
- Exits for PE (selling out of invested companies) have become more difficult in recent years.

"Over a 10 year period, VC and PE has barely outperformed the S&P 500. And then even over shorter periods of time you're in a spot where... the S&P has often outperformed VC and PE, particularly in the last couple years where PE is having a very hard time getting exits." — Scott Becker [02:14]

Lock-up/Liquidity:
- PE and VC investments typically tie up money for 5–10 years or more.
- S&P 500 investments can be bought and sold at any time.
Fee Structure:
- S&P 500 index funds have minimal fees compared to high fees in PE and VC.

3. Return Statistics and Historical Performance (03:11 – 04:00)

25-Year Averages:
- VC: ~15–17%
- PE: ~13–14%
- S&P 500: ~8%
Recent 10-15 Year Returns:
- PE & VC: ~15–16%
- S&P 500: ~14%
Becker highlights that differences in returns, though statistically present, are not always sufficient to justify significant tradeoffs in liquidity or increased risk.

"I used to think when I first became an investor in private equity and VC, that now I've really made it. This is where the big boys invest. And I did learn the lesson the hard way... the returns don't necessarily outperform the S&P at all. And often you give up a lot of liquidity for the hope of beating the S&P." — Scott Becker [04:19]

4. Intangible Benefits and Personal Reflections (04:01 – 05:00)

Networking and Experience:
- Personal interaction and networking with other investors and company founders have been more rewarding to Scott than the financial returns.
Practical Advice:
- For most investors, the S&P 500 offers almost the same returns as PE and VC (in recent decades) with more liquidity and lower fees.

"The most fun part of being invested in private equity in VC has not been the monetary returns. For me, it's been the ability to network and visit with and talk to different people that I never would otherwise talk to. But in terms of an economic decision, I've done no better with VC and private equity to date than I have with the S&P 500." — Scott Becker [04:37]

Takeaway:
- Unless you have non-financial goals like networking, for most people, S&P 500 index investing is “absolutely just fine.”

"For the great majority of us, the S&P 500 and the index and the liquidity is absolutely just fine. At least over the last 10, 15 years has been almost as good as the S and P is the private equity in the VC and with a lot more liquidity and a lot less fee exposure." — Scott Becker [04:51]

Notable Quotes & Memorable Moments

On perceived exclusivity of PE & VC:
"I used to think when I first became an investor in private equity and VC, that now I've really made it. This is where the big boys invest." — Scott Becker [04:19]
On core reality of returns:
"Returns don't necessarily outperform the S&P at all. And often you give up a lot of liquidity for the hope of beating the S&P." — Scott Becker [04:28]
On the value of networking:
"The most fun part of being invested in private equity in VC has not been the monetary returns. For me, it's been the ability to network and visit with and talk to different people that I never would otherwise talk to." — Scott Becker [04:37]

Timestamps for Key Segments

00:31: Introduction and definitions of PE, VC, S&P 500
01:31 - 02:14: Long-term and recent comparative performance
02:15 - 03:00: Liquidity, risk, exits, and short-term variability
03:11 - 04:00: Return percentages and investment realities
04:01 - 04:51: Personal insights and practical advice for investors

Summary Takeaway

Scott Becker distills years of investing wisdom and experience into a refreshingly candid episode: While private equity and venture capital may seem alluring, they're not guaranteed tickets to bigger gains than the humble S&P 500—especially after accounting for risk, liquidity, and fees. For the vast majority of investors, a simple, liquid, low-fee S&P 500 index approach is “absolutely just fine.” The real bonus of PE/VC? The people and connections—not just the profits.

Transcript

A (0:02)

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B (0:31)

This is Scott Becker with the Becker Business and the Becker Private Equity Podcast. Today's discussion is a short discussion of private equity versus venture capital versus the S&P 500. So here's a deal with these three and just to give people a quick overview, Private equity generally invest in relatively healthy companies that already have EBITDA or profits and revenues. Venture capital often invest pre revenues or early revenues before things are profitable. And then The S&P 500 of course is the index of all the SB 500 firms. And so you're buying a little piece of each of that. And so what's happened over the very long term? Venture capital's the highest risk and has generally thought of as the highest returns over a very long period of time. The private equity is better than the S and P's and the S and P has the lowest average long term rate and returns that come in at 8 to 10% or so. Now when you look at the last year and the last 10 years, those seeks change significantly. PE and VC over a 10 year period barely beats the S&P 500 by about 1 percentage point. And you have to remember when it barely beats it by 1 percentage point, you're also in a spot with the S&P 500 where you've got constant liquidity. With VC and PE you generally have no liquidity. You're tied up for 5, 7 or 10 years or longer. So over the 25 year period VC has outperformed PE. PE has outperformed S&P. Over a 10 year period, VC and PE has barely outperformed the S&P 500. And then even over shorter periods of time you're in a spot where the where it's really all over the board. And the S and P has often outperformed VC and pe, particularly in the last couple years where PE is having a very hard time getting exits. So when you look at this and stats in this are all over the board, when I look at 1015 year returns, you're typically looking at about 15 16% for PE and VC, 14% for the S&P over the last 10 years or so. And so the S and P gives up a little bit to VC and PE over the very, very long term. The S&P 500 returns are closer to 8%, the VC is closer to 15, 17% and the PE is closer to 13, 14%. So VC outperforms over the very long run, but much more risk reward with vc. And a lot of this depends on what vintage you're investing in PE and vc. So it's not an absolute, not a categorical thing. I used to think when I first became an investor in private equity in VC, that now I've really made it. This is where the big boys invest. And I did learn the lesson the hard way, which is how I learned many lessons, that the returns don't necessarily outperform the S and P at all. And often you give up a lot of liquidity for the hope of beating the S and P. Now, the most fun part of being invested in private equity in VC has not been the monetary returns. For me, it's been the ability to network and visit with and talk to different people that I never would otherwise talk to. But in terms of an economic decision, I've done no better with VC and private equity to date than I have with the S&P 500. Don't know that I have anything else to add right now in terms of PE versus venture capital versus the S&P 500. But for the great majority of us, the S&P 500 and the index and the liquidity is absolutely just fine. At least over the last 10, 15 years has been almost as good as the S and P is the private equity in the VC and with a lot more liquidity and a lot less fee exposure. Thank you for listening to the Becker Business Podcast, the Beckham Private Equity Podcast. We hope you find this interesting. I certainly find looking at these things very interesting. Thank you for listening and for joining us in the Vector Business Podcast, the Vector Private Equity podcast. Thank you very, very much.