4 ms·

This is not a investment. It is a tool for leverage. The goal is not to grow the company it's to get as many contracts as they can and lower the ebita. Once the

This is not a investment. It is a tool for leverage. The goal is not to grow the company it's to get as many contracts as they can and lower the ebita. Once they do this they will take out huge loans for the next company to destroy. I don't blame the founders. But at the same time I think if enough of these deals for bad these types of investors will stop their bad practices. This sort of move not only hurts employees. It hurts those who use the product too. It's a net bad for everybody but a few. I am still digging into how these things work and how the money gets out. But I would not be surprised if sometime in the future this sort of business engineering would be made illegal. Look what PE did to solar winds and general dollar. Both had huge piles of cash and were drained and put back on the market for the general public to pay the debt.

toomuchtodo 8y ago
> This is not a investment. It is a tool for leverage. The goal is not to grow the company it's to get as many contracts as they can and lower the ebita. Once they don't his they will take out huge loans for the next company to destroy. All investments are buying cashflow or value appreciation, that is the end goal, regardless of the method. As long as the PE firm involved gets more cash out then they put in, it was a successful investment. I address how both companies and customers can protect themselves in my comment you replied to. If someone buys a private company, the majority shareholders were willing participants. Better ownership and stakeholder models protect against these outcomes. No one is going to buy Let's Encrypt. Consider if that model would work for CICD as a service. Start a non-profit, round up the talent, fire up the infrastructure, provision a Stripe account, and build something better. Let's Encrypt secures the web for $3 million/year. Crunchbase and Glassdoor mention Travis CI had ~$1-1.5 million/year in revenue.
hnzix 8y ago
It sounds like a new spin on 1980s-style corporate raiding? Pillaging a company then moving on, leaving behind the carcass. I can't see how this behavior helps us as a society, it's legal but unethical.
- pas 8y ago
  I don't know if it's good or bad, but we like to think that vultures fill a niche, make ecosystems richer. Sure, our economies and ecosystem of firms doesn't necessarily have to look like a full out evolutionary war for resources, but .. it sort of does, and it's not going to change any time soon. So, im that sense if we want stable and nice companies, we have to care for them. Sort of like we do with pandas, rhinos, and so on. One possibility is doing pledge, using corporate bylaws to try to guarantee some of that niceness. Do it through IT (and startup, and VC and so) communities' wall of fame/shame.
  - mbrumlow 8y ago
    The problem is these vultures tend to swoop in while the company is still alive and kicking. Everybody expects their company to do amazing in 3 to 5 years and if does not they kick it to the curb. The problem is if you look at all the amazing companies that are doing really well. The majority of them took near 10 years to come to their own. Half the amazing companies in SV if ran buy these PE guys would not exist if they were given to them at year 5 of their life.
    - pas 8y ago
      If it was that alive and kicking founders wouldn't have sold it off to the vultures. :/ There's difference between PE and PE. Look at SoftBank's Vision fund, they want to invest still more than 100B USD (it's already at around a 100), they want to fuel growth of sectors, etc. And then there's "company turnaround management", where the employee count chart gets turned around, and cashflow becomes king.

toomuchtodo 8y ago

> This is not a investment. It is a tool for leverage. The goal is not to grow the company it's to get as many contracts as they can and lower the ebita. Once they don't his they will take out huge loans for the next company to destroy. All investments are buying cashflow or value appreciation, that is the end goal, regardless of the method. As long as the PE firm involved gets more cash out then they put in, it was a successful investment. I address how both companies and customers can protect themselves in my comment you replied to. If someone buys a private company, the majority shareholders were willing participants. Better ownership and stakeholder models protect against these outcomes. No one is going to buy Let's Encrypt. Consider if that model would work for CICD as a service. Start a non-profit, round up the talent, fire up the infrastructure, provision a Stripe account, and build something better. Let's Encrypt secures the web for $3 million/year. Crunchbase and Glassdoor mention Travis CI had ~$1-1.5 million/year in revenue.

hnzix 8y ago

It sounds like a new spin on 1980s-style corporate raiding? Pillaging a company then moving on, leaving behind the carcass. I can't see how this behavior helps us as a society, it's legal but unethical.

pas 8y ago
I don't know if it's good or bad, but we like to think that vultures fill a niche, make ecosystems richer. Sure, our economies and ecosystem of firms doesn't necessarily have to look like a full out evolutionary war for resources, but .. it sort of does, and it's not going to change any time soon. So, im that sense if we want stable and nice companies, we have to care for them. Sort of like we do with pandas, rhinos, and so on. One possibility is doing pledge, using corporate bylaws to try to guarantee some of that niceness. Do it through IT (and startup, and VC and so) communities' wall of fame/shame.
- mbrumlow 8y ago
  The problem is these vultures tend to swoop in while the company is still alive and kicking. Everybody expects their company to do amazing in 3 to 5 years and if does not they kick it to the curb. The problem is if you look at all the amazing companies that are doing really well. The majority of them took near 10 years to come to their own. Half the amazing companies in SV if ran buy these PE guys would not exist if they were given to them at year 5 of their life.
  - pas 8y ago
    If it was that alive and kicking founders wouldn't have sold it off to the vultures. :/ There's difference between PE and PE. Look at SoftBank's Vision fund, they want to invest still more than 100B USD (it's already at around a 100), they want to fuel growth of sectors, etc. And then there's "company turnaround management", where the employee count chart gets turned around, and cashflow becomes king.