The White House continues to demonstrate its truly jaw-dropping ignorance of free enterprise and capitalist economics with its truly lame-brained and stupid attacks on Romney's Bain Capital and other venture capitalist firms.
The Comrade and his henchmen insist that Bain, and others like it, swoop down on unsuspecting companies, suck out all the capital and assets, and if the company remains in business, Bain then ships all the jobs overseas. Well, that's absolutely ridiculous.
What Bain actually does is offer a real boost to economic growth and stability, and if that's not possible in a given situation, they can redirect what's left of a failed venture into more productive and profitable channels. Here's what venture capitalists do:
Usually, these firms are made of up rich guys who accumulated a pile on Wall Street or in their own businesses. They very often are, legally, partnerships, or limited liability corportations with a very limited number of shareholders -- the investor-partners themselves. Partners may or may not be actively involved in the business. A lot of times, a guy will retire and take a few of his hard-earned millions, throw them in the pot of a vetnture capitalist firm, and leave it to the CEO and others there to look after.
What venture capital firms offer to potential clients is money and guidance. And venture capital firms are also known as "high-risk" investors -- so they're willing to bet a little more than most of the rest of us on companies and ideas that are usually a little too "iffy" to qualify for bank loans.
Suppose you inherited a family business. It was very successful at one time, but your dad/mom sort of sat back the last few years, you were sowing your wild oats and not interested, and your sibs pursued other careers. So now seeking some kind of stability, you agree to take over the business.
Your company has a lot of "good will" in it -- long-term and loyal customers, a reputation for fairness and quality products, and a stable or possibly growing market for your products. However, because your folks have let it slide the last few years, for you to make a success of it in 2012, you need to retool -- bring in computerized systems and retrain your workforce, possibly upgrade your building, market and advertise to break into broader markets, etc.
The thing is, over the last few years, while your parents were contemplating their retirement, a larger firm has been moving in on your traditional markets. This newer company not only has all the current, digital bells & whistles, but they're also developing newer, cheaper, more desireable products.
So there's lots of potential in your company -- in your employees' know-how and experience, customers who want to do business with you, etc. -- but you need lots of cash to bring it all up to speed and to be able to fend off an aggressive competitor.
So you go to the bank. The trouble is, your assets are outdated and your company over the last few years has looked pretty anemic in the marketplace. The bank pats you on the shoulder and wishes you the best, but, no, sorry, we need some solid collateral to back up any loans -- which your obsolescence doesn't support -- and/or you need some kind of market-leader position, which right now is in question.
So where do you go? Uncle Dave? He's also retiring and, after that unfortunate incident at Cousin Emily's wedding, he doen't regard you as someone he trusts to take care of his retirement savings.
Well, there's always venture capitalists. To get their attention, you generally have to really get yourself together, put together a long-term business plan, enumerate all your needs and project your earnings more or less realistically. (However, your enthusiasm would be welcome.) You have to detail exactly how you plan to succeed, and how much it will cost them to support you. If a venture capital firm gives you an appointment, it's for your presentation to them, explaining preceisely (and honestly) the status of your business and what you plan to do with it.
Venture capital firms look at your current results, which are probably rather disappointing, but they also give considerable weight to your potential, something often too ethereal for a bank to ponder. They'll want to see your facility, meet your employees, scrutinize your books. They will also probably examine your CFO (Chief Financial Offer) with a very cold and calulating eye -- Is this guy any good? What's her background and history? How long is he going to stay? Has she demonstrated good judgment and honesty regarding company funds?
If venture capitalists invest in your firm, they'll do it for equity. That is, they may give you that $5 million, but they'll want a seat on the board of directors and a percentage of your earnings -- they become a stakeholder. Often not a majority shareholder, but still and all, a stakeholder, with the right to advise, look at your books, and otherwise direct and manage your company.
Depending on the size of the investment and the needs of your company, these new investors -- the venture capitalists -- may bring in a whole raft of experts to assess and advise you. They may insist on a restructuring. They may demand that you sell off unprofitable assets, terminate or re-develop certain product lines. They may insist that you fire half your staff, pare down to the barebones and start over, pursuing another direction in the marketplace.
Of course, you can agree to this or not. Venture capitalists are not the federal -- or even state -- government. They can't force you to do anything. They can only agree or not to invest in your company. They put their cash and their business acumen on the line, and they require a profit on their investment. If your company fails, so do they. Venture capitalists are rish-takers, but they're often extremely smart and experienced, something that also can give them the appearance of ruthlessness. They're in it for the money. No apologies.
So they look at your company. Maybe you just want to sell it outright. Maybe the venture capitalists will agree to something like a buy-out, and then put their own managers in place. And maybe, if the outlook is grim and with little promise, the venture capitalists will sell your business to a larger, related corporation. Or they may decide it's time to liquidate, take their equity from the sold assets, AND THEN TAKE THAT CAPITAL AND INVEST IT IN A MORE PRODUCTIVE BUSINESS SOMEWHERE ELSE.
Not always a happy ending, but venture capitalists are most successful when you are.
Venture capitalists do what The Comrade, Geithner, and Bernanke have been trying and failing to do for the last four years. Venture capitalists look at the mess you've got and, nine out of ten times, they fix it. Or let it go -- rechanneling the assets and employees toward more profitable and productive efforts.
The difference here is, venture capitalists have considerable knowledge, experience, and a large pool of private funds to back them up. The Comrade, Geithner, and Bernanke have what? Experience rabble rousing, doling out reprimands for SEC violations (and missing Bernie Madoff, at that), and God knows what Bernanke does at the Fed. And they're playing with public funds -- tax dollars. And more often than not, they're making bad and stupid "feel-good" choices based on the fantasies of Al Gore and losing it all.
So let's hear it for the venture capitalists. Only very rich societies have them. They provide the grease that helps to turn the wheels of free enterprise. It's all about getting money and support where it's necessary, useful, and profitable.
On the other hand, when the government takes on this task, it's what Mussolini called "fascism." When government and business join foces and you no longer have much say at all in exactly what they do with your business or anyone else's -- or your money.
So tell me again about "vulture" capitalism.
Save the Republic.
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