History of private equity and venture capital - Wikipedia, the free encyclopedia

 

I am attaching a very good overview of the history of the private equity business.

 

It is popular among many liberals and the media to lambast big business and corporations, etc. However, having worked for corporations that, for for the second time in my career, have been bought by private equity firms, I muse over the changes.

 

The corporations were started with a purpose and usually grew and were managed by people committed to balancing the needs of customers, owners and employees. It is when the corporations started or needed to grow to and needed greater financing than could be provided by internally generated cash that they went to either: banks, private equity firms or public offerings or all of the above that things start to change.

 

All of the investement sources are all about the money of course. However, what I have found about private equity firms in both cases are that they are ALL about wringing every bit of financial advantage out of a business first, and employees and customers are only necessary evils to meet those goals until the business can be sold again at a higher price or taken public.

 

So, IMO, when the liberals attack corporations, I think it would be more useful to understand how our businesses are financed and consider how the tax rates penalize an operating corporation in favor of get rich quick venture capitalists.

 

I say this with knowledge that the liberals did not create this issue. And, the issue was initially borne because US companies needed capital to grow and compete globally against particularly Japanese companies where access to capital was supported by large banks and the government.

 

However, as we go forward, will we be better served to make policy adjustments that: provide capital acces for growing companies; prevent the company and its managers from becoming pimps/prostitutes working for the capital provider; and ease the cost of employment burden on growing corporations?

Like any group, there are good eggs and bad eggs, but private equity and venture capital are a pretty large and broad group.

 

Some buy out large companies and try to reinvigorate them. Others are in on the ground floor at the very beginning, nurturing a fledgling firm.

 

For every capital investment group out there that's buying up businesses and trying to turn them around in a hurry, there's another group providing seed money to new tech startups. It's a large and complicated business and it's hard to say where it hurts and where it helps.

I agree. It is easier to not care about people, and only maximize efficiency of assets when you never have to dirty yourself on ground level. PE firms generally only deal w/ upper management and bring the heat on them in order to get their investment back and then to profit. The father of 4 means no more than the revenue that they can generate. I agree with you completely.

Like any group, there are good eggs and bad eggs, but private equity and venture capital are a pretty large and broad group.

 

Some buy out large companies and try to reinvigorate them. Others are in on the ground floor at the very beginning, nurturing a fledgling firm.

 

For every capital investment group out there that's buying up businesses and trying to turn them around in a hurry, there's another group providing seed money to new tech startups. It's a large and complicated business and it's hard to say where it hurts and where it helps.

 

Good post, and I would agree with this. As I briefly mentioned, many of the "good ones" to which you referred have been instrumental in development of many technology companies.

 

I am somewhat baiting a discussion on the restructure of the tax scenario: reduce corporate income tax, reduce employment taxes, and increase the capital gains tax on assets held

Like any group, there are good eggs and bad eggs, but private equity and venture capital are a pretty large and broad group.

 

Some buy out large companies and try to reinvigorate them. Others are in on the ground floor at the very beginning, nurturing a fledgling firm.

 

For every capital investment group out there that's buying up businesses and trying to turn them around in a hurry, there's another group providing seed money to new tech startups. It's a large and complicated business and it's hard to say where it hurts and where it helps.

 

Very true. If I am not mistaking, our mayor has a private equity/venture capital back ground with dCatalyst and Iceberg Ventures. I think he went into that area after starting SerVend and investing in Med Ventures and Dant Clayton.

 

When I worked in public accounting with one of the Big 5, one of our clients was a venture capital firm and they had the idea of buying small glass companies across the country who specialized in different types of glass manufacturing to build a one stop shop glass company that could serve across the country. I never heard how it worked out but the idea made sense.

How would they be ruining our country?

Like any group, there are good eggs and bad eggs, but private equity and venture capital are a pretty large and broad group.

 

Some buy out large companies and try to reinvigorate them. Others are in on the ground floor at the very beginning, nurturing a fledgling firm.

 

For every capital investment group out there that's buying up businesses and trying to turn them around in a hurry, there's another group providing seed money to new tech startups. It's a large and complicated business and it's hard to say where it hurts and where it helps.

 

True.

 

Private equity 'saved' Lexmark.

 

Privately held firms are also not subject to the whims of quarter to quarter reporting to 'the street'. So they have more financial flexibility than a publicly held company that must 'make its numbers' each quarter.

 

Of course the Gorden Gecko model of buying a company and killing it by selling off its pieces may exist time to time. But most private equity is a) startup venture capital or turnaround specialists who believe in the product and brand of a company but know it needs new management or spinoff owners who take parts of a company being split from a larger company (like Lexmark).

 

I have worked for an a) Startup funded with venture investment and supported b) as customers and saw some of the activity at Lexmark under Clayton Dubilier as they positioned it to emerge as a public company.

 

If the SEC does its job fraud should be reduced but the SEC has been a failure for years and years now...well before this administration.

How would they be ruining our country?

 

The thread has a question mark at the end of it. What's your opinion?

 

I think the sensitivity to the stock market, turning around the company at a gain lead to very short-term planning and thinking. It is OK to be profit-driven, but the risk is that long range value is foresaken for short term gains. A buyer can take over a company, cut investments, cut heads and show a profit, sell the company at a gain and move on. I don't see that being good for country.

The thread has a question mark at the end of it. What's your opinion?

 

I think the sensitivity to the stock market, turning around the company at a gain lead to very short-term planning and thinking. It is OK to be profit-driven, but the risk is that long range value is foresaken for short term gains. A buyer can take over a company, cut investments, cut heads and show a profit, sell the company at a gain and move on. I don't see that being good for country.

 

Got it. I would say no, they are not ruining the country. I don't see a problem with buying a business, increasing the revenue, then selling for a profit. I think it puts more money into the owner's pockets, allowing them to spend it on more goods.

 

Maybe I am not looking deeply enough into it, but what is the negative side of the argument? Is it that employees are worked too much in the buying/selling process?

Got it. I would say no, they are not ruining the country. I don't see a problem with buying a business, increasing the revenue, then selling for a profit. I think it puts more money into the owner's pockets, allowing them to spend it on more goods.

 

Maybe I am not looking deeply enough into it, but what is the negative side of the argument? Is it that employees are worked too much in the buying/selling process?

 

I think that part of the question comes down to whether the things private equity firms can do to pump up their short term gains have long-term negative effects on the economy at large.

 

For example: ABC Capital Group buys out XYZ Logistics. ABC spends the next 380 days pumping up revenues at an unsustainable rate for the company, trimming down staff, selling off unwanted assets, etc. Then ABC comes to the conclusion that XYZ is no longer of value to them. ABC has essentially pared down the company so much that XYZ is a shell of its former self, even if moderately still profitable. Within another year ABC has moved on, sold the business and ultimately, XYZ fails.

 

Now, this doesn't happen very often, but it can and it does. Sometimes company bosses who start the company or are at least very familiar with it can see things beyond costs and revenues that can be useful for long-term goals that people who aren't typically in the business can't envision. ABC may have actually cut short that company's long-term profitability in the interest of pumping up short-term revenues to make good on their investment.

 

Again, doesn't happen often but now imagine that there are 100 groups like ABC buying up 100 firms like XYZ. How many of them suffer that fate? What if they buy up 1,000? So the question becomes: does private equity's need for immediate results on investment damage the economy's long-term prospects by not allowing countless bosses of good firms to do their jobs they way they know how?

Got it. I would say no, they are not ruining the country. I don't see a problem with buying a business, increasing the revenue, then selling for a profit. I think it puts more money into the owner's pockets, allowing them to spend it on more goods.

 

Maybe I am not looking deeply enough into it, but what is the negative side of the argument? Is it that employees are worked too much in the buying/selling process?

 

My thoughts are that our tax structure is more preferential to a short-term investor who wants to acquire a company (ies), "synergize" them and sell them in a

 

Or at least I am exploring that premise.

I think that part of the question comes down to whether the things private equity firms can do to pump up their short term gains have long-term negative effects on the economy at large.

 

For example: ABC Capital Group buys out XYZ Logistics. ABC spends the next 380 days pumping up revenues at an unsustainable rate for the company, trimming down staff, selling off unwanted assets, etc. Then ABC comes to the conclusion that XYZ is no longer of value to them. ABC has essentially pared down the company so much that XYZ is a shell of its former self, even if moderately still profitable. Within another year ABC has moved on, sold the business and ultimately, XYZ fails.

 

Now, this doesn't happen very often, but it can and it does. Sometimes company bosses who start the company or are at least very familiar with it can see things beyond costs and revenues that can be useful for long-term goals that people who aren't typically in the business can't envision. ABC may have actually cut short that company's long-term profitability in the interest of pumping up short-term revenues to make good on their investment.

 

Again, doesn't happen often but now imagine that there are 100 groups like ABC buying up 100 firms like XYZ. How many of them suffer that fate? What if they buy up 1,000? So the question becomes: does private equity's need for immediate results on investment damage the economy's long-term prospects by not allowing countless bosses of good firms to do their jobs they way they know how?

 

As mentioned, this is the 2nd time in my career that my organization has been acquired by private equity firms or companies owned by private equity firms. It looks like I am batting 2 for 2 now. The firm that acquired us is cutting into some areas that needed cutting no doubt, but I am also concerned that the new investors have a goal to sell the business in 3 years. We are already very profitable. The profit targets they have set are unattainable without making cuts that will limit the future prospects of the business.

 

Again, they are taking advantage of the opportunity. I think we may can help ourselves if we take a deeper dive into corporate taxation and financing to provide more incentive to the hold and grow investors rather than the synergize and sell investors.

My thoughts are that our tax structure is more preferential to a short-term investor who wants to acquire a company (ies), "synergize" them and sell them in a

 

Or at least I am exploring that premise.

 

How is the tax structure more preferential for the short term investor? Aren't both ordinary income at ordinary tax rates? For the short termer, along with ordinary tax rates in income, when he sells it, he as to be short term capital gains rates where as the one who holds doesn't have to pay capital gains since he/she is not selling.

I think that part of the question comes down to whether the things private equity firms can do to pump up their short term gains have long-term negative effects on the economy at large.

 

For example: ABC Capital Group buys out XYZ Logistics. ABC spends the next 380 days pumping up revenues at an unsustainable rate for the company, trimming down staff, selling off unwanted assets, etc. Then ABC comes to the conclusion that XYZ is no longer of value to them. ABC has essentially pared down the company so much that XYZ is a shell of its former self, even if moderately still profitable. Within another year ABC has moved on, sold the business and ultimately, XYZ fails.

 

Now, this doesn't happen very often, but it can and it does. Sometimes company bosses who start the company or are at least very familiar with it can see things beyond costs and revenues that can be useful for long-term goals that people who aren't typically in the business can't envision. ABC may have actually cut short that company's long-term profitability in the interest of pumping up short-term revenues to make good on their investment.

 

Again, doesn't happen often but now imagine that there are 100 groups like ABC buying up 100 firms like XYZ. How many of them suffer that fate? What if they buy up 1,000? So the question becomes: does private equity's need for immediate results on investment damage the economy's long-term prospects by not allowing countless bosses of good firms to do their jobs they way they know how?

 

Got it. I see the point now and didn't consider it much. The private equity firms I know about that have acquired companies of some people close to me have had more of a hands off approach, which (if you couldn't tell by any of my government posts) I am all about. I can see where if ABC were to fire many workers from XYZ it could cause (overall) hurt to our country. But we have to respect that ABC does have the right to fire XYZ workers and do whatever they feel is best for the company, since it is their money at risk. (Not saying you disagreed with the last sentence, just throwing it out there.)

 

As mentioned, this is the 2nd time in my career that my organization has been acquired by private equity firms or companies owned by private equity firms. It looks like I am batting 2 for 2 now. The firm that acquired us is cutting into some areas that needed cutting no doubt, but I am also concerned that the new investors have a goal to sell the business in 3 years. We are already very profitable. The profit targets they have set are unattainable without making cuts that will limit the future prospects of the business.

 

Again, they are taking advantage of the opportunity. I think we may can help ourselves if we take a deeper dive into corporate taxation and financing to provide more incentive to the hold and grow investors rather than the synergize and sell investors.

 

Well, that is how you make money!