Wednesday, January 11, 2012

Romney & The Truth About Venture Capital Companies

The truth about venture capital companies, like Bain Capital, the equity firm founded by Governor Mitt Romney, is that they are solely in business to make money, by getting a good return on investment, as quickly as possible.   This contrast with Berkshire Hathaway, founded by Warren Buffett, which is a buy and hold company.   Venture Capital companies buy companies with the full intent of flipping them as soon as they can make a good profit on their investment. 

To be clear, Venture Capital companies are not in business as a primary goal to "create jobs".   If jobs happen to be created as a result of a Venture Capital investment, all and good, but job creation is not the driving force behind Venture Capital company investments.   Very often Venture Capital companies go into distressed companies, to make an investment to save the company by improving the viability of the company, which could include selling the parts of the company that have little, or no value.  When that happens, people very often lose their jobs.  It is what it is.  And, sometimes the company can't be saved resulting in bankruptcy and closure.   This is a high risk, potentially high reward business. 

Venture Capital companies also implement another get rich quick scheme and that is to take a perfectly healthy public company private.   When they do that in some cases, Venture Capital companies will then load the company up with debt by borrowing against the assets of the company.  In essence, Venture Capital companies take out a huge mortgage on the company to take out millions, if not billions of dollars that are distributed up front to the players as dividends, or other distributions.  

If all goes well and the cash flow is there to make the payments, life goes on.   If the economy turns as has happened in some of these deals, the company could face bankruptcy.   This scheme can be evil because it is clearly intended to make the Venture Capital company and the senior management of the acquired firm millions of dollars, without really contributing any value to the company.   This could be termed Vulture Capitalism. 

This is a classic case where cards talk and numbers don't lie as all Venture Capital companies only care about the numbers.   There is no doubt that Governor Mitt Romney, who was rich from inheritance before he founded Bain Capital, got much richer after founding Bain by working the numbers in these Venture Capital deals.  

This Blogger predicted several blog postings ago that Romney's wealth and involvement with Bain, portrayed as a Wall Street Company, even though Bain is headquartered in Boston, plays right into Obama's Class Warfare reelection strategy.   The fact that this whole discussion is coming up during the primaries is actually good because if Romney can't stand up to the scrutiny now, he will never be able to withstand Obama's billion dollars in negative ads next fall. 

Mitt Romney claims that he created 100,000 net new jobs through the 100 or so deals done by Bain while he was CEO.   That is all fine and dandy; but those people will not be in the negative commercials coming out against Romney.  Instead, Obamanistas will have the factory worker that lost his job, stand in front of the shuddered factory, to tell his story particularly if that job ended up in China.   There will be many sad stories designed to make Romney look like a rich villain Vulture Capitalists. 

If Mitt Romney does win the Republican nomination for the Presidency, he must take the offensive on this issue.   First, he must explain the nature of Venture Capital companies and point to all the firms in the US, whether established by Bain, or other Venture Capital companies, that are in business today because of these investments.   In doing so, he must defend free market capitalism and contrast it with Obama's Socialism.   To date, while other Republicans candidates have done so, Mitt Romney has not used the word Socialism in reference to Obama because Romney is a Moderate.   If Romney has any chance of winning, he has to take the gloves off and call Obama the Socialist that he is and always has been. 

We have to take back our country in 2012 and 2014.   We all know that Socialists like President Obama will do anything, or say anything to stay in office.  Obamanistas will lie, commit election fraud and literally raise the dead to vote for Obama.   After all, this is business as usual for Chicago dirty politics.   Obama's Republican opponent, who ever he is, must be tough as nails to defeat Obama.   Our country depends on it.  

So, if Mitt Romney is the Republican nominee,  the people running his campaign must be prepared to fight fire with fire.  Let's start with calling Obama a Socialist; hence the reason this Blogger always refers to Socialist President Obama.   When we hear Mitt Romney using these words, we will know that he is serious about winning the Presidency.   Until then, we can assume that Mitt Romney is not tough enough to wage this campaign. 

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