[HN Gopher] Private equity ruins tech companies
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Private equity ruins tech companies
Author : achariam
Score : 44 points
Date : 2024-10-07 21:11 UTC (1 hours ago)
(HTM) web link (blog.zmh.org)
(TXT) w3m dump (blog.zmh.org)
| nick__m wrote:
| The title could be generalized to "Private equity firms ruins
| companies"
| TheAdamist wrote:
| Tech seems to accelerate the decline though, without the
| inertia of physical stores or plants to slow things down.
| gosub100 wrote:
| I haven't been to the dentist in 4 years and I'm hell-bent on
| finding one that is not part of PE or any type of corporate
| ownership. I'm prepared to drive to rural areas or hours away
| because I will not trust that their incentives are aligned with
| mine.
| antonyt wrote:
| Is there an easy way to discover whether or not a given
| business is owned by PE?
| throwaway9010 wrote:
| 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 growth. It was personally
| the most stressful period of my working life...
|
| From then on, the moment that I see private equity mentioned
| anywhere, I know its time to run.
| jimnotgym wrote:
| Isn't venture capital merely a kind of private equity?
| toomuchtodo wrote:
| VC is musical chairs waiting for the greater fool to come
| along. Still good times. PE is the chop shop, there is no
| greater fool left except the customers and the employees. End
| of the road.
| 23david wrote:
| It sounds unusual for a seed-stage company (I assume that's
| what you mean) to seek funding from private equity. Did the
| company already have significant revenue and profitability? Why
| did the founder go for private equity rather than VC.. was the
| founder basically looking to sell/exit at that point?
| throwaway9010 wrote:
| Yeah exactly - it was essentially at the revenue of series B
| or C at that point. This is in 2021 during the height of
| ZIRP, so I assume part of it was frothiness but the aftermath
| was terrible.
| earnesti wrote:
| This is not really news. The question is, what there is to do? I
| think that it is logical to sell your company to highest bidder
| when you want to exit, and often the highest bidder ends up being
| a PE firm.
| mostlysimilar wrote:
| Be a founder that wants to build a long-term business that
| employs people that want to create a good product. Be an
| employee that will only work for companies founded by those
| people.
| toomuchtodo wrote:
| This. Also, importantly, you need ownership and governance
| mechanisms as a founder so employees are partners.
| csa wrote:
| > I think that it is logical to sell your company to highest
| bidder when you want to exit
|
| Some founders are more than happy to sell at a lower price _if_
| they think the lower bidder will be a good custodian of the
| company.
|
| "Good custodian" is relative, but often means things like
| treating existing employees well, trying to maintain the best
| parts of the company culture, keeping clients happy, keeping
| the quality of the product or service of a company at a high
| level, etc.
|
| Sometimes founders realize that an extra bag of money on top of
| the multiple bags they are already getting won't buy them self-
| respect.
|
| Fiduciary responsibility can make this murky sometimes, but
| that's a cop out more often than not, imho.
| vintagedave wrote:
| 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?
| xyst wrote:
| Is there a company out there that has survived a gutting by PE?
| blakesterz wrote:
| Last I heard Barnes and Noble was doing pretty good:
|
| https://www.theverge.com/23642104/barnes-and-noble-amazon-bo...
| tcmart14 wrote:
| 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. There is nothing really in their line of
| business that makes it worth it for a brain drain to reduce
| cost and sell it higher than what you bought it for. But I'd
| also guess there are few to no people who want to enter the
| book selling business. So if your a PE firm that is gonna
| acquire it, your only option is to actually run it halfway
| decently? I guess maybe they could have slimmed it down to
| virtually nothing and tried to sell it to Amazon, but I
| wonder if that merger would be allowed to go through?
| twoodfin wrote:
| Dell seems to be doing OK.
| jimnotgym wrote:
| It depends entirely on the strategy. Sometimes PE invests to
| help a business acquire other businesses
| SpicyLemonZest wrote:
| Yes. The specific equity firm that owns WP Engine has multiple
| notable successes, including Skype, GoDaddy, and Dell.
| (https://en.wikipedia.org/wiki/Silver_Lake_(investment_firm))
| jacknews wrote:
| Have these companies actually improved since being acquired,
| or just not collapsed?
| Apreche wrote:
| Even if that's true, that's even less reason to attack them and
| make yourself look terrible. Just wait and they'll destroy
| themselves.
| mathstuf wrote:
| Sure, but the blast radius still has to be considered. Working
| to reduce that is certainly a worthwhile endeavor even if the
| end state is the same.
| bawolff wrote:
| Working to reduce what? The risk of wpengine over extending
| and going bankrupt? So we try and bankrupt them earlier? This
| makes no sense.
| mathstuf wrote:
| Campaign to stop PE takeovers, stop investing in/consuming
| from PE-backed firms, refuse to work for them (a highly
| privileged option, but more likely to be available for
| tech), etc. Basically a boycott.
| bawolff wrote:
| It seems like none of the issues with wpengine have anything to
| do with private equity. The article just said private equity
| sucks, which sure i will grant, but that doesn't say anything
| about this particular conflict. Private equity isn't responsible
| for literally every sin in the world.
|
| I feel like this article is essentially a smear piece - wpengine
| is associated with private equity therefor is not deserving of
| sympathy. Or something like that.
| skybrian wrote:
| It would be good to explain the difference between PE funding and
| VC funding.
| dzink wrote:
| VC relies on you growing enough to attract bigger investors in
| the future at a higher valuation, including going public. PE
| bets on you having a really reliable cash flow that they could
| strap a bunch of debt on to extract the cash in a tax-favored
| government-subsidized fashion.
| usaphp wrote:
| Hmm, why was this removed from a homepage?
| dzink wrote:
| This reads like it was written by generative AI. Private equity
| is often the vulture a company is sold to when the founders can't
| take it public or find a symbiotic merger first. In a traditional
| LBO it loads the company with debt, based on a steady stream of
| cash flows. The cash flows are key. It's akin to having a wild
| stallion which grew up fast and beautiful and then putting a
| saddle on its back and an ore behind it. In public companies that
| looks like going from a growth stock to a dividend stock to a
| high dividend stock that people only buy for tax purposes because
| the dividend is less than the devaluation in stock price over
| time. You can look at the financial statements of companies or
| the details in any stock app and you can see where they are at in
| this maturation curve. Then invest your time and money
| accordingly.
| jonathaneunice wrote:
| A single example is insufficient, especially when that example is
| Drupal.
|
| In a former life I evaluated WordPress, Drupal, and some other
| open source CMSs. Drupal seemed remarkably terrible. Maybe I just
| wasn't the target user...but UI, UX, and DX all seemed blighted
| and the ecosystem much less vibrant than WP's. Came away thinking
| it was a vestige of yesteryear, and not something in which to
| invest any time, energy, or money.
|
| Maybe that's a harsh take on Drupal, but one already-seemingly-
| in-decline property from which one PE firm extracted value... if
| over-extraction and under-investment really is a systemic problem
| of PE, there must be many more, much better examples.
| itsdrewmiller wrote:
| If you look at the chart, Drupal starts declining immediately
| upon being purchased. Hard to imagine Vista was able to destroy
| the community that quickly; seems more likely they bought high
| on Acquia, or even Acquia was doing something sneaky to juice
| its sale price.
| joegibbs wrote:
| 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 companies that get eaten up by PE are the ones that are
| failing anyway?
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(page generated 2024-10-07 23:01 UTC)