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I believe that entrepreneurs could do well, generally, by looking for opportunities in industries that are dominated by private-equity players. If an industry
by rscale 14y ago
I believe that entrepreneurs could do well, generally, by looking for opportunities in industries that are dominated by private-equity players.
If an industry is overweight PE, you can bet that the market analysis looks fantastically attractive (competition isn't too fierce, suppliers have little power, buyers have little power, not many substitutes, and little perceived threat from new entrants). If a clever entrepreneur can render that last condition false and enter that market, that entrepreneur has the opportunity to shrink and consolidate a $huge market that's owned by PE players into a $smaller market that is owned by the entrepreneur.
PE controlled competitors will, generally, not be particularly agile, because PE tends to capture value by leveraging the heck out of a currently viable business model. It's a model that works really well as long as base assumptions hold true, but startups can ruin that for them.
- mattmiller 14y agoHow do you find industries dominated by PE?
- rohin 14y agoMake a list of the top 20 PE funds (KKR, Bain Capital, TPG, etc) and then check out their portfolio from their website or WSJ articles.
- tptacek 14y agoThere are a lot of KKR companies. Wow.
- heretohelp 14y agoAnalysis, research, work. The stuff you ostensibly do when you're not on HN.
- notJim 14y agoCould someone explain for the… ahh… more financially naïve among us why private equity is the important signifier here? It seems like what rscale is talking about are markets which are opaque due to companies that have enough clout to force that inefficiency (e.g., by restricting information or making product comparisons impossible.) Why or how is that coordinated with private equity?
- marklabedz 14y agoAt the risk of putting words in rscale's mouth, its not that PE creates these conditions or that PE is even necessary for these conditions. Instead, PE tends to find and play in highly attractive industries (See Porter's 5 Forces for a classic view of "attractiveness"). PE involvement in an industry can be a good signal...
- notJim 14y agoAhh, very cool. That makes a lot of sense to me. Basically you're using PE as a proxy for a measurement of attractiveness.
- marklabedz 14y agoYes, that's a good way to look at it. Its really important to recognize the crux of rscale's point though - you have to render the high barriers to entry condition false. If you can't figure out how to enter, the remaining conditions don't really matter.
- stcredzero 14y ago> Basically you're using PE as a proxy for a measurement of attractiveness. How about PE as a proxy for "incumbency?" That is to say, you're looking at companies who figured out a formula to "print money" then let themselves get complacent and fat, thereby becoming targets for PE. This would explain why they tend to be not so agile. I just had an image of a cabal of attractive young women, somewhat resembling James Bond villainesses, but who are trained in business and economics, who seek out dalliances with PE firm executives in order to perform industrial espionage.
- 001sky 14y agoFreudian slip? free-cash-flow is attractive to pe (=$$$), even for plane-jane business =D tech is a counter-example.
- winterchil 14y ago
- joshu 14y agohuh. clever thought.
- rdl 14y agoPE is huge into firearms right now (Cerberus set up Freedom Group which owns Remington, Bushmaster, etc.) http://www.nytimes.com/2011/11/27/business/how-freedom-group-became-the-gun-industrys-giant.html?pagewanted=all http://www.nytimes.com/2011/11/27/business/how-freedom-group... If I were not in tech, the firearms industry would be really attractive.
- nazgulnarsil 14y ago>Unlike military counterparts like automatic M-16’s, rifles like those from Bushmaster don’t spray bullets with one trigger pull. But, with gas-powered mechanisms, semiautomatics can fire rapid follow-up shots as fast as the trigger can be squeezed. They are often called “black guns” because of their color. The police tied a Bushmaster XM15 rifle to shootings in the Washington sniper case in 2002. Has nothing to do with the article, but they just can't resist.
- rdl 14y agoIt's the NY Times. Actually the opposition of the "smart" people like NY Times, leftists in general, etc. to firearms makes it an even better investment opportunity; less competition.