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> Can someone steelman private equity, please? Step back and look at what it fundamentally is. Person A has a business they want to sell. Person B has a pile

> Can someone steelman private equity, please? Step back and look at what it fundamentally is. Person A has a business they want to sell. Person B has a pile of money and thinks that that business is (or can be) a good investment. That's it. So, what happens if person A is prohibited from selling their business? Are they forced to keep working because they don't have enough other savings to retire on? Do they shut the business down in order to retire? Something else? . Calls to ban private equity are attempts to play "shoot the messenger".

sandeepkd 13d ago
May be categorizing the different private equities can be helpful here. A PE interested and invested for growth is always the best outcome. A PE only looking to salvage and squeeze is that gives the bad branding to PE.
- 0xDEAFBEAD 13d ago
  It basically comes down to interest rates right? If interest rates are low, the discounted-cash-flows analysis will favor maximizing long-run profitability. If interest rates are high, you can do better by squeezing the business in the short term and placing the money you obtained into some sort of high-yield, low-risk investment vehicle.
  - sandeepkd 13d ago
    The positive argument about PE adding value is around efficiency of processes and scale. Interest rates can make a difference however in reality I doubt that it effects the outcome in most cases. Companies have already invested in staff with certain type of expertise and they are unlikely to change their plans or rehire based on the interest rates in short run.
    - works_at_pe 13d ago
      It's not always "efficiency". My PE is SaaS heavy portfolio. Pricing strategy, GTM, product roadmap; companies have rev, good moat, good customer base. But clear opportunity to grow rev. Many companies are held by original founders. Leadership teams in eng and product have been the same for a decade+; lacking exposure to how the industry is shifting. AI, for example, has slow adoption in some cases.
  - Xirdus 13d ago
    When interest rates are low, it's most profitable to invest in extremely high risk, extremely high reward unicorn startups. That makes way more money on average than any long-run profitability. In fact, long-run profitability is basically never the most efficient use of money regardless of market conditions.
- TylerE 13d ago
  Why does everything have to be obsessed with growth? Especially with practically every (first world, at least) country having a birth rate well below replacement.
  - lotsofpulp 13d ago
    Because everyone promised themselves a lot of benefits in old age that they want someone else to provide them.
  - nradov 13d ago
    Not all businesses are obsessed with growth. Many mature businesses are managed for value rather than growth and focus on returning profits to shareholders through dividends or stock buybacks.
- works_at_pe 13d ago
  > A PE interested and invested for growth is always the best outcome. (Throwaway) I work at a top ~10 PE. This is what we do. One portfolio company has a product on old tech. We bring in a product team, a CTO, internal tech teams. Help shape a roadmap to tackle the most egregious tech and product debt so teams can move faster. Fix non-existent or outdated pricing strategy that has not evolved with the industry. Fix, grow, or evolve GTM to reach new customers. Help bring fresh leadership resources in when needed. Industry is typically "boring" and systems are valuable, but aging. We invest, modernize, and try to grow new rev streams, new customers. Portfolio is SaaS focused (can't speak for those that invest in real estate and healthcare). The employees of the PE also co-invest so everyone is aligned to help the portfolio companies grow and exit. This is a multiyear process.
  - sandeepkd 13d ago
    Naming couple companies that you acquired for whom you changed the trajectory would be a lot stronger signal without revealing your identity. On side note, its rare to see anyone fixing the old tech, its hard to fix, needs a different kind of talent thats hard to hire for the PE money. The folks who can understand some one else's decade old code and run their imagination through all the possible assumptions or trade off that might have been made in code/system are rare to find. Finding new customers, finding more things to sell, finding synergies with other items in your portfolio, increasing the price for existing products are more realistic.
    - works_at_pe 13d ago
      We have portfolio level CTOs that specialize in this playbook. Fixing the tech means many things. Many companies don't even have CI (forget CD). Some have really broken processes and handoffs between teams. And yes, some are running COBOL backends. Sorry, naming a portfolio company would reveal the PE.
  - bruce511 13d ago
    I'm going to side-track a bit, but since I'm being courted by PE I thought I'd ask. >> The employees of the PE also co-invest Is this voluntary, or mandatory? I ask because I've seen clauses along the lines of "75% of bonuses are paid in shares, not available for sale for 5 years." Using bonus money to buy shares props up the share price, but delays the employee actually seeing the bonus for 5 years. Seems pretty win-lose to me, and kinda puts me off. Is this a standard practice you mean by co-invest? (As an aside, I'm not a fan of buying shares where I work, that's not a good portfolio-diversification model. If the business goes under it's not good to lose both your job, and investments, on the same day.)
what 13d ago
Except they always strip mine the business. Cut the quality and push unnecessary shit. But, hey, you can fill out your forms on an iPad instead of pen and paper. Very cool.
Xirdus 13d ago
> So, what happens if person A is prohibited from selling their business? I actually made that thought experiment. Disallow selling businesses. Disallow selling shares. Disallow stock market. Disallow mergers. The only way to acquire a business is to found it or to inherit it. The only way to quit a business is to shut it all down, with all assets liquidated, all liabilities settled, and all contracts terminated. The main downside is that it's harder for to make money. Otherwise... I only see positives. And no, it wouldn't kill innovation. The investors would just have to invest the old fashioned way - by founding companies or expanding their existing businesses. As for job security, we already don't have it in the current system.
- tacostakohashi 13d ago
  Private property is theft! Disallow eyeglasses. Abolish money. Any other good ideas?
  - Xirdus 13d ago
    You can sell all your offices, desks, printers, laptops, machinery, land, inventory, intellectual property, and anything else you want to your heart's content, to anyone you want, for any price you want. The only thing you can't sell is the legal entity itself.
- alex43578 13d ago
  That's such an incredibly shortsighted view of the downsides. In your model, the only possible business owners would be those with major capital resources to begin with, encouraging the spread of existing businesses into a sprawl: Walmart is now your doctor, pharmacist, and pharma manufacturer. Nobody would start a small business because they'd have to carry all liability, any new ideas are limited to spread at a glacially slow pace, because companies can't be aquired or acqui-hired, but can instead only scale on their own revenues.
  - bruce511 13d ago
    It's worse than that. When the owner retires, all staff lose their jobs. That's a fairly big bummer. I'm currently part of a "small" business/factory (around 50 employees). The owner is nearing retirement. Are all 50 of us gonna hit the streets tomorrow? Should our customers, many longstanding over 20 years get their contracts terminated? Do they get any warning? Can they easily switch to other suppliers? Is our offering somewhat unique? Frankly, I think the thought-experiment is very incomplete if you can't see major downsides.
__MatrixMan__ 13d ago
The business itself need not be a sellable thing. Sell the assets maybe, potentially to somebody who wants to use them to run the same kind of business in the same kind of location with the same employees. It's hostile to the consumer to call it the same business. A name change gives them the opportunity to decide for themselves whether the new owner is worth supporting. It's similarly hostile to the employees to assume that their loyalties can be bought and sold. Let the new owner of the assets re-hire them for the same position in the same location if he wants to, but lets not have them be for sale.
- 1123581321 13d ago
  I think that last point is opposite; it’s seen as heartless when the new owner of a business goes through rehiring existing employees instead of assuring them they still have a job.
  - __MatrixMan__ 13d ago
    Isn't offering them a job that's equivalent to their old one indistinguishable from assuring them that they still have a job? No need to make people reinterview, but at least give them the option to turn down the offer. Maybe I'm making too big of a deal out of semantics, but every time somebody buys me it makes me angry.
    - 1123581321 13d ago
      I don't think it's equivalent because it's paperwork they now have to think about, they're wondering if it's wiping away old employment promises or systems, did everyone get one of these offers, etc. Definitely see how some would prefer the job reconsidered, though. There's no system that makes everyone happy, including to never sell a business. These things are good to think about; appreciate it.

sandeepkd 13d ago

May be categorizing the different private equities can be helpful here. A PE interested and invested for growth is always the best outcome. A PE only looking to salvage and squeeze is that gives the bad branding to PE.

0xDEAFBEAD 13d ago
It basically comes down to interest rates right? If interest rates are low, the discounted-cash-flows analysis will favor maximizing long-run profitability. If interest rates are high, you can do better by squeezing the business in the short term and placing the money you obtained into some sort of high-yield, low-risk investment vehicle.
- sandeepkd 13d ago
  The positive argument about PE adding value is around efficiency of processes and scale. Interest rates can make a difference however in reality I doubt that it effects the outcome in most cases. Companies have already invested in staff with certain type of expertise and they are unlikely to change their plans or rehire based on the interest rates in short run.
  - works_at_pe 13d ago
    It's not always "efficiency". My PE is SaaS heavy portfolio. Pricing strategy, GTM, product roadmap; companies have rev, good moat, good customer base. But clear opportunity to grow rev. Many companies are held by original founders. Leadership teams in eng and product have been the same for a decade+; lacking exposure to how the industry is shifting. AI, for example, has slow adoption in some cases.
- Xirdus 13d ago
  When interest rates are low, it's most profitable to invest in extremely high risk, extremely high reward unicorn startups. That makes way more money on average than any long-run profitability. In fact, long-run profitability is basically never the most efficient use of money regardless of market conditions.
TylerE 13d ago
Why does everything have to be obsessed with growth? Especially with practically every (first world, at least) country having a birth rate well below replacement.
- lotsofpulp 13d ago
  Because everyone promised themselves a lot of benefits in old age that they want someone else to provide them.
- nradov 13d ago
  Not all businesses are obsessed with growth. Many mature businesses are managed for value rather than growth and focus on returning profits to shareholders through dividends or stock buybacks.
works_at_pe 13d ago
> A PE interested and invested for growth is always the best outcome. (Throwaway) I work at a top ~10 PE. This is what we do. One portfolio company has a product on old tech. We bring in a product team, a CTO, internal tech teams. Help shape a roadmap to tackle the most egregious tech and product debt so teams can move faster. Fix non-existent or outdated pricing strategy that has not evolved with the industry. Fix, grow, or evolve GTM to reach new customers. Help bring fresh leadership resources in when needed. Industry is typically "boring" and systems are valuable, but aging. We invest, modernize, and try to grow new rev streams, new customers. Portfolio is SaaS focused (can't speak for those that invest in real estate and healthcare). The employees of the PE also co-invest so everyone is aligned to help the portfolio companies grow and exit. This is a multiyear process.
- sandeepkd 13d ago
  Naming couple companies that you acquired for whom you changed the trajectory would be a lot stronger signal without revealing your identity. On side note, its rare to see anyone fixing the old tech, its hard to fix, needs a different kind of talent thats hard to hire for the PE money. The folks who can understand some one else's decade old code and run their imagination through all the possible assumptions or trade off that might have been made in code/system are rare to find. Finding new customers, finding more things to sell, finding synergies with other items in your portfolio, increasing the price for existing products are more realistic.
  - works_at_pe 13d ago
    We have portfolio level CTOs that specialize in this playbook. Fixing the tech means many things. Many companies don't even have CI (forget CD). Some have really broken processes and handoffs between teams. And yes, some are running COBOL backends. Sorry, naming a portfolio company would reveal the PE.
- bruce511 13d ago
  I'm going to side-track a bit, but since I'm being courted by PE I thought I'd ask. >> The employees of the PE also co-invest Is this voluntary, or mandatory? I ask because I've seen clauses along the lines of "75% of bonuses are paid in shares, not available for sale for 5 years." Using bonus money to buy shares props up the share price, but delays the employee actually seeing the bonus for 5 years. Seems pretty win-lose to me, and kinda puts me off. Is this a standard practice you mean by co-invest? (As an aside, I'm not a fan of buying shares where I work, that's not a good portfolio-diversification model. If the business goes under it's not good to lose both your job, and investments, on the same day.)

what 13d ago

Except they always strip mine the business. Cut the quality and push unnecessary shit. But, hey, you can fill out your forms on an iPad instead of pen and paper. Very cool.

Xirdus 13d ago

> So, what happens if person A is prohibited from selling their business? I actually made that thought experiment. Disallow selling businesses. Disallow selling shares. Disallow stock market. Disallow mergers. The only way to acquire a business is to found it or to inherit it. The only way to quit a business is to shut it all down, with all assets liquidated, all liabilities settled, and all contracts terminated. The main downside is that it's harder for to make money. Otherwise... I only see positives. And no, it wouldn't kill innovation. The investors would just have to invest the old fashioned way - by founding companies or expanding their existing businesses. As for job security, we already don't have it in the current system.

tacostakohashi 13d ago
Private property is theft! Disallow eyeglasses. Abolish money. Any other good ideas?
- Xirdus 13d ago
  You can sell all your offices, desks, printers, laptops, machinery, land, inventory, intellectual property, and anything else you want to your heart's content, to anyone you want, for any price you want. The only thing you can't sell is the legal entity itself.
alex43578 13d ago
That's such an incredibly shortsighted view of the downsides. In your model, the only possible business owners would be those with major capital resources to begin with, encouraging the spread of existing businesses into a sprawl: Walmart is now your doctor, pharmacist, and pharma manufacturer. Nobody would start a small business because they'd have to carry all liability, any new ideas are limited to spread at a glacially slow pace, because companies can't be aquired or acqui-hired, but can instead only scale on their own revenues.
- bruce511 13d ago
  It's worse than that. When the owner retires, all staff lose their jobs. That's a fairly big bummer. I'm currently part of a "small" business/factory (around 50 employees). The owner is nearing retirement. Are all 50 of us gonna hit the streets tomorrow? Should our customers, many longstanding over 20 years get their contracts terminated? Do they get any warning? Can they easily switch to other suppliers? Is our offering somewhat unique? Frankly, I think the thought-experiment is very incomplete if you can't see major downsides.

__MatrixMan__ 13d ago

The business itself need not be a sellable thing. Sell the assets maybe, potentially to somebody who wants to use them to run the same kind of business in the same kind of location with the same employees. It's hostile to the consumer to call it the same business. A name change gives them the opportunity to decide for themselves whether the new owner is worth supporting. It's similarly hostile to the employees to assume that their loyalties can be bought and sold. Let the new owner of the assets re-hire them for the same position in the same location if he wants to, but lets not have them be for sale.

1123581321 13d ago
I think that last point is opposite; it’s seen as heartless when the new owner of a business goes through rehiring existing employees instead of assuring them they still have a job.
- __MatrixMan__ 13d ago
  Isn't offering them a job that's equivalent to their old one indistinguishable from assuring them that they still have a job? No need to make people reinterview, but at least give them the option to turn down the offer. Maybe I'm making too big of a deal out of semantics, but every time somebody buys me it makes me angry.
  - 1123581321 13d ago
    I don't think it's equivalent because it's paperwork they now have to think about, they're wondering if it's wiping away old employment promises or systems, did everyone get one of these offers, etc. Definitely see how some would prefer the job reconsidered, though. There's no system that makes everyone happy, including to never sell a business. These things are good to think about; appreciate it.