Greed and Debt: The True Story of Mitt Romney and Bain Capital

ouch

no worries though, nobody reads rolling stone

 

Or at least the ones that read it don't vote

 

What's amazing to me is how little understanding there is about the field of venture capital. They're lumping in what Bain Capital does with what firms like KKR and guys like Carl Icahn did in the 1980s. It's just lazy. The entire Bain model is based on using their management and strategy expertise to grow or turn around companies. That's the Bain value proposition.

Here's the sad fact: many of these firms that went bankrupt under Bain had their corporate lives extended by the very firm against which thei former employees rail. And like it or not, a VC firm's first responsibility is to their shareholders. The best case scenario is to make money through growing the company's market share. If they make a bad bet, however, they have a fiduciary responsibility to protect the initial investment or try to make as much money from the liquidaton as possible.

 

In my mind, there's a pretty big difference between venture capital funds and hedge funds (and for that matter LBO deals.) Bain Capital definitely is outside the scope of being a VC. Venture funds generally are much more focused on earlier stage companies that are pre-IPO, growth companies. They may make exceptions and invest later stage, but that's not their bread and butter.

Honestly, the way the deals described in the article where described, LBO pretty well nails it. That said, I'm no Bain expert, but I'm guessing they made plenty of deals that were different than those and it's possible (likely?) that the descriptions weren't perfect. If they invest enough in a company, funds (whether hedge or VC) will usually have a couple board seats, but they won't have so much control over the executive positions. From what I've heard, Bain took a much more active approach in the mgmt of those companies.

 

There's a big difference between board seats and advice than there is providing mgmt personnel. VC funds don't really do that...and I've worked with a lot of them...they may refer good candidates to companies, but hiring is much more the company's call. GS is not a VC -- it's an investment bank. They underwrite IPOs, but they are not known generally known as a VC. They may have a VC branch, but again, it's not their bread and butter. I just looked at the Bain website and they have a VC branch of the business, but from my understanding of Mitt's background, that was not at all his focus.

Obviously VCs don't throw their money around willy nilly, but the best ones invest in the mgmt team alongside the technology. You can't have one without the other and be successful.

 

Private equity is not really the same as venture capital, Denny.

 

Exactly. I think it's inaccurate to describe any of what Romney accomplished at Bain as being in the venture capital world. I'm biased because that's the area where I work, but I pretty much love venture/startup companies...it's old school capitalism with a technology twist. True entrepreneurism. A person with an idea, sacrificing to build a company. It's good stuff. The American dream. Not to say Bain Capital hasn't possibly done some good in the world, but it has a different model than the VC model.

Private equity tends to be more about LBO type deals (though admittedly not always) and VCs are more about starting companies from scratch. They both have their place, but VCs a generally more likeable in what they do...although they too can be a pain in the ass.

As far as the firing CEO story goes, it can happen for sure, but it's never part of the deal when a financing closes. I've seen CEOs shown the door after the company has underperformed, but it takes awhile before that happens. Interestingly enough, Tom Baruch who is quoted in the story was on the board of one of my clients and the CEO was eventually shown the door by that board. In LBOs, it'll happen simultaneously with or soon after the deal closes. It's a different dynamic.