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Private equity ruins tech companies

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Re: Private equity ruins tech companies

#41

Post by RajT88 »

throwaway9010 wrote: post #3

I've seen firsthand how PE ruins startups. I joined a seed co and our founder went with a PE firm rather than a VC for our next round. The VCs were upfront about job cuts but the PE investors did not say anything until they took over. Needless to say, the founder got a good paycheck but we were left holding the bag. It was a bloodbath and they completely ruined the culture, product, morale, and any semblance of growt…

A company I worked at got bought by private equity.

The sales started to slump for the product I worked with, and they decided to make up for it by raising prices. They figured they would make more money than they lost by alienating customers. The other thing they did was drastically ramp up license compliance shakedowns (one of the shadiest practices I have seen in the industry).

The product and company are still around because bits got sliced up, spun off or sold off. PE no longer has its tendrils in it, although I am not sure who does now.

Re: Private equity ruins tech companies

#42

Post by alephnerd »

vintagedave wrote: post #6

This is an aspect of the Wordpress vs WPEngine I hadn’t considered. Does anyone who’s more familiar with WPEngine than me know if the VC ownership has affected its behavior?

Silver Lake (the owner of WPEngine) is a PE, not a VC.

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PEs tend to target investments in mature companies instead of early stage to growth stages companies.

It's just another form of capital for companies that have decided to stay private, or wish to return to private ownership.

Oftentimes, if leadership makes the choice to do one or the other, that means the company isn't doing as hot, because until recently, listing publicly and raising capital on a strong listing was fairly doable.

That said, imo this does lead to a bit of a bias about the outcomes of PE ownership, because if you are choosing PE ownership, that often means investors and potentially even leadership just want an exit and don't care as much about the underlying product anymore.

Re: Private equity ruins tech companies

#43

Post by chii »

plorkyeran wrote: post #38
joegibbs wrote: post #31

PE are vultures: vultures feed on dead animals, not healthy ones. You don't sell off a successful, thriving business to be gutted and restructured because you're going to make much more money keeping it going the same way. "Private equity backed companies are 10 times more likely to go bankrupt than public companies." - is this because they're running successful companies into the ground or because the kind of compan…

A lot of PE acquisitions are companies with would have otherwise trundled along not making any money but taking a very long time to go bankrupt, with the PE firm pushing them much faster towards bankruptcy. There is a causal relationship between a PE acquisition and going bankrupt, but nonetheless you’re right; obviously companies which are bought by people who buy failing businesses have worse outcomes than public c…

> PE firm pushing them much faster towards bankruptcy

the PE firm pushing them to do something drastic, but low chance of success, in the hopes of turning the fortunes around.

And there's nothing wrong with that imho - if it was going down, might as well chance a lottery ticket. The people who lose money are the PE investors, who knew the risk coming in.

Re: Private equity ruins tech companies

#44

Post by infotecht »

joegibbs wrote: post #31

PE are vultures: vultures feed on dead animals, not healthy ones. You don't sell off a successful, thriving business to be gutted and restructured because you're going to make much more money keeping it going the same way. "Private equity backed companies are 10 times more likely to go bankrupt than public companies." - is this because they're running successful companies into the ground or because the kind of compan…

I think a more apt comparison is to fungus -- it can be part of a healthy ecosystem, rotting and breaking down old growth. It can also take hold of an otherwise healthy host long before its natural end, and just like with our bodies and food we take steps to mitigate that.

Re: Private equity ruins tech companies

#45

Post by jemmyw »

Reading this makes me change my view on PE a little. Beforehand I would have just been in the "PE is bad" camp. But if you look into how a PE company like Silver Lake works and their prior purchases, it's not asset stripping. It seems much more like taking a bet they can turn an underperforming public company into a well performing private one and cash in the difference, usually with a partner who has a plan on how to do the turnaround.

That's not to say it's good. It's just another investor tool like VC money. And it's probably also a simplification to say it's all about short term profit when they talk about being able to take companies on longer term strategies than the public market would allow for.

Re: Private equity ruins tech companies

#46

Post by red-iron-pine »

TheAdamist wrote: post #4
nick__m wrote: post #2

The title could be generalized to "Private equity firms ruins companies"

Tech seems to accelerate the decline though, without the inertia of physical stores or plants to slow things down.

Paul Virilio has been saying that for years

Re: Private equity ruins tech companies

#47

Post by red-iron-pine »

tcmart14 wrote: post #22
blakesterz wrote: post #10

Earlier quoted context omitted.

Last I heard Barnes and Noble was doing pretty good: https://www.theverge.com/23642104/barnes-and-noble-amazon-bo...

B&N is also probably the only example I can think of that has gotten somewhat better since. But I also wonder if its an outlier even worth considering. I don't work at B&N, so this is me making a guess. They don't have any kind of patents (software or otherwise), so no real valuable IP, its just a straight forward business. Not a disruptor of tech. No manufacturing, or at least manufacturing it is highly dependent on…

Most of B&N's competition is dead -- Amazon ate them. There is still a niche for actual books bought in person, and there is still a demand from consumers to go to a bookstore and do the bookstore thing, drink coffee, peruse, etc.

That niche is probably just in big, educated markets. Like the B&N in Northern VA I used to go to in college is still there. But at a mall in rural Idaho, probably not so much.

Re: Private equity ruins tech companies

#48

Post by tcmart14 »

red-iron-pine wrote: post #47
tcmart14 wrote: post #22

Earlier quoted context omitted.

B&N is also probably the only example I can think of that has gotten somewhat better since. But I also wonder if its an outlier even worth considering. I don't work at B&N, so this is me making a guess. They don't have any kind of patents (software or otherwise), so no real valuable IP, its just a straight forward business. Not a disruptor of tech. No manufacturing, or at least manufacturing it is highly dependent on…

Most of B&N's competition is dead -- Amazon ate them. There is still a niche for actual books bought in person, and there is still a demand from consumers to go to a bookstore and do the bookstore thing, drink coffee, peruse, etc. That niche is probably just in big, educated markets. Like the B&N in Northern VA I used to go to in college is still there. But at a mall in rural Idaho, probably not so much.

For sure, I agree with a lot here. I am still a regular customer of B&N. Even got a paid membership this year and switched from the Kindle to the Nook. I image there is some customer base like me who are using B&N just to avoid Amazon also.

Re: Private equity ruins tech companies

#49

Post by bigiain »

TheAdamist wrote: post #4
nick__m wrote: post #2

The title could be generalized to "Private equity firms ruins companies"

Tech seems to accelerate the decline though, without the inertia of physical stores or plants to slow things down.

Some of their argument:

" ... owners focus on aggressive cost-cutting and “streamlining” operations to boost short-term profitability. This is extremely destructive, leading to mass layoffs, reduced benefits, and wholesale outsourcing. "

could just as easily be used to claim "tech companies ruin tech companies."

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