NEW ROMNEY VIDEO: In 1985, He Said Bain Would "Harvest" Companies for Profits

[BlueStreak]

23. I don't mean to get pedantic, but Obama cannot appear anti-Capitalism

Venture capital firms generally invest in start-ups and they are all about helping the company be profitable ASAP. If not profitable, they at least want to help the company become successful enough that they can raise their own money through the equity markets. Anybody who values entrepreneurship and sees that as essential to our future should be supportive of venture capital firms and the role they play.

Bain is not a venture capital company. They did a little of that but that was not their main business. They were and are a "private equity" firm, along the lines of Blackstone, KKR, Carl Icahn and other notorious companies. Some of these companies do play a valuable role in providing a second chance for companies that managed to get near death's door. I think there are plenty of good examples where KKR has saved companies that otherwise would have disappeared. It isn't always a good story, but there are companies in this category providing an important service for our capitalist system.

Please note that venture companies don't want to be associated with private equity at all. They have a trade group that does its best to maximize the distance between "venture capital" and "private equity".

One very clear line of distinction is that venture capital puts their own money into the deal, and they are betting on the SUCCESS of the company. Private equity companies usually structure deals where they have little of their own money at risk. And when you operate like Bain, you virtually guarantee yourself a nice return even if the company fails.

This is where the "harvest" comment becomes really important. It separates companies like Bain that are just trying to suck resources, from companies like KKR that usually have a genuine interest in the acquired company returning to health.

It isn't a really bright line of separation. KKR has done some ruthless takeovers and Bain has had a few where the company actually survived the operation. But on the whole, Bain was about "harvesting" or sucking resources out of the takeover target with little concern whether the target lived or died.