Businesses often need access to cheap capital in order to grow and thrive. There are, of course, a number of ways to obtain capital but one involves selling shares in the business in return for an investment from Private Equity or Venture Capital. It is the lifeblood of business but, in my experience, it comes with a lot of strings attached.
Some PE and VC firms probably do a good job. Plainly, they are in it to make money for their investors and they want to see a return on their investment. Sometimes though, the PE or VC firm becomes a parasite that feeds off of a good business and sucks it dry. To me, this is a crime and thats why I write about it today. I have directly experienced this many times.
Firstly, it’s often greed that drives the PE or VC firm not some philanthropic need to see good businesses grow or even the idea that in return for access to capital and expertise, a return is expected. Invariably, the required return is so aggressive and so silly that from day 1, management are forced into a corner of promises and commitments they cannot actually deliver. It’s always the same. The VC firm says it invested because in part, it believes in the management team and then it proceeds to undermine that same management team in insidious and idiotic ways. Why?
The management team is often the founder(s). They understand the business and the market intimately. The PE or VC firm often does not although it can be arrogant enough to think it does. Further, they often come armed with their network of CEO’s. In my experience, these ‘CEO’ types are empty suits who seem to enjoy a career of moving from one business to another leaving a trail of unemployment, failure and tears and yet they always get another super job managing another company to its destruction. I know a handful of these characters. Smiling, jovial, wealthy idiots who actually couldn’t manage their way out of a wet paper bag.
If I sound a tad angry remember I said I had direct experience of such a thing and yes, I am mad because I saw a good business ruined in less than 18-months by a VC firm and its groomed external specialist who was to lead us to an IPO and riches. He led 80 good people to the unemployment line is what he did and then moved on to his next lucrative position.
I think this whole sordid capital scene needs to be thoroughly reviewed and regulated. It is the cesspit of capitalism where a few greedy people chase more wealth without any real expertise or desire to help small businesses. I have seen too many good businesses ruined by these sharks.