Private Equity Should Not Exist

An old-ish, but great read about Private Equity came across my social feed yesterday… Why Private Equity Should Not Exist by Matt Stoller. And as a significant beneficiary of private equity investment, I'd like to reiterate its point: Private equity should not exist.

I've been part of two acquisitions and mergers of companies in my career: The first, an acquisition by a larger company looking to expand into a new market (from print to digital); the second, by private equity looking to bundle related services into one “family”.

The first wasn't a great experience, largely due to management from the larger company not really understanding what or who they bought. But the second genuinely felt more sinister. Almost as soon as the ink had dried, the entire decision-making direction of the company felt different. And this article does a better job nailing why that is than I think I could ever manage:

“While the movement is couched in the language of business, using terms like strategy, business models returns of equity, innovation, and so forth, and proponents refer to it as an industry, private equity is not business. On a deeper level, private equity is the ultimate example of the collapse of the enlightenment concept of what ownership means. Ownership used to mean dominion over a resource, and responsibility for caretaking that resource. PE is a political movement whose goal is extend deep managerial controls from a small group of financiers over the producers in the economy. Private equity transforms corporations from institutions that house people and capital for the purpose of production into extractive institutions designed solely to shift cash to owners and leave the rest behind as trash.”

“Extractive institutions” – that describes perfectly the vibe-shift that occurred at the company following the PE investment. Pinching pennies at the expense of the things that made the company worth buying in the first place. And, more critically, the general attitude towards employees felt notably more combative. Anyone who dared to try to uphold the previous culture of open communication was very swiftly "dealt with", and had to learn their place.

I'm not alone in feeling that way. As one of the original founders put it, from the start of the merge process it felt like everyone had their "dukes up". He didn't understand why, but those of us with fewer zeroes on our equity payouts could simply feel the disdain of new management, and most of us were pissed. It's incredibly telling that 9 of the 11 people from the product team I was on left within a year of the acquisition. Some were pushed out as I was (i.e. "dealt with"), the rest simply decided that it was no longer a good place to work. Many more from other teams also left in the same timeframe, but when you lose over 80% of the team that built the thing you bought in under 12 months, it's hard to defend that you're doing the right thing. Recognizing that the private equity group's goal is purely in extracting value for themselves, regardless of what they told the executives going in, helps make the disappointment easier to handle, but the principle is no less infuriating.

My experience with mergers and acquisitions is very obviously biased, but as Matt's article details, the story tends to follow remarkably similar patterns for any private equity investment. I was the first employee at that company, so I understand that my disappointment in what happened is probably unique; not a founder so I didn't get rich enough to retire off the investment, but still there long enough to tremendously benefit financially and be deeply emotionally invested. But as I've discussed with friends and former collegues over the years since, I know I'm not the only one who felt a deep disappointment as private equity gutted the things we loved most about where and how we used to work.

I don't have an exit strategy for my own web development services company, but having been at the start of something before, you can't help but dream from time to time. And if a day ever does come to sell the company, you can be sure it won't be to private equity.

Private equity isn't just bad, exploitative, and extractive. It shouldn't exist.