The private equity industry provides important capital that benefits a variety of U.S. businesses. However, debate has surfaced about whether private equity plays a legitimate role in fostering entrepreneurship and creating jobs – particularly as a funding source for early-stage innovative startups. Based on years of experience working with entrepreneurial organizations at all stages of development, my answer is a resounding “no.” Here’s why.
PE firms have traditionally used the formula of buying companies, loading them up with debt, restructuring them through layoffs, outsourcing, and other cost-saving moves, draining the cash generated by using it to repay the debt, and then reselling the company in public or private markets for a hefty profit. PE often relies on such financial engineering to realize outsized returns, regardless of the target company’s industry, innovativeness, growth potential, or other metrics. This strategy stifles a company’s potential to invest in new job creation and innovation and pursue other growth opportunities – two critical success factors for innovative startups.
To read the original article: Why Private Equity and Entrepreneurship Don't Mix - Forbes
