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A venture capitalist tells the truth about Romney, Bain and private equity

Republican presidential hopeful Mitt Romney is coming under fire from his opponents for his business record while head of Bain Capital, a private equity firm. Such attacks appear likely to continue, whether prosecuted by his Republican competitors, or by the Democrats lying in wait, should Romney emerge victorious post-primary.

As seen on TV and reported in Thursday’s Wall Street Journal Texas governor Rick Perry described Mr. Romney as a "vulture capitalist" while spotlighting factories in South Carolina where he said Bain had cut jobs during Mr. Romney's tenure.” 

A “super PAC” supporting Newt Gingrich has amped up his attacks on Romney’s private sector career releasing a 28-minute film called ‘King of Bain: When Mitt Romney Came to Town,’ which features interviews with distraught people who claim they lost their jobs at companies taken over by Bain.

Having spent my 25 year career investing private equity and venture capital, I could not stay silent to the persistent mischaracterizations of venture capital and private equity.

While the electorate, congress and some portion of the Presidential debate are pre-“occupied” with Wall Street, the more protest worthy issue is the misinformation being spread about those who do and may create jobs.

Agree or disagree, we all know something isn’t right with both our capitalist system, and our system of representative government. If our society is to be judged by the prospects of its least successful, we should not be proud.

Let’s focus on jobs until it hurts, and let’s agree that anything or anyone that distracts us from fixing the problem is the problem.
The complexity and ambiguity of a thoughtful debate on private equity’s utility to the economy strains our media distribution channel and political campaign system. And while I salute journalists’ ongoing efforts to keep politicians accountable for what they say…Anderson Cooper and his truth squad, Steven Colbert’s perennial “truthiness,” and Bill O’Reilly’s “keeping ‘em honest,” even The Wall Street Journal’s assessment of Mitt’s record of job creation can’t solve an unanswerable question.
Rick Perry’s recent attacks describing Bain as swooping in on sick companies, leaving nothing but bones behind is tantamount to a drive by information terrorist attack. It’s effective, hard to respond to and the truth is left as a wounded bystander.
Romney may have made a political miscalculation in framing his and Bain’s record of job creation as part of his presidential bona fides – but his job wasn’t to create jobs, it was to create superior returns -- something which he appears to have done very successfully.
Running a private-equity fund is in itself a form of electable office; if a fund does not produce competitive returns, that fund will likely not be ‘elected’ again.
Yet somehow scores of retirees have, unknowingly, already “re-elected” Romney through their states’ respective public pension funds. They can thank the Bain for the gains the funds made and for bulking up their retirement plans. In fact, while it’s previously gone unspoken they owe Romney a debt of gratitude.
Professional investors in mature private companies don’t necessarily hurt the economy nor are they heroes of the economy, nor are they on a certain path to getting rich quick.
In fact, some larger private equity firms, victims of their historical success, had pension funds throw money at them, causing huge fee income and entrenched misalignment. And there were many other examples of over the top greed which did do harm to companies.
However, if twisting the facts surrounding Mitt’s record at Bain successfully yields an adopted belief that his ‘vulture capitalist’ activities are anti-American, we need to make crystal clear that venture capitalists, who serve a vital role in the innovation economy, do not suffer the same fate.
If bad policy follows because of a wave of ill-informed resentment, we are all victims.
Republicans are feeding Mitt to the Lions, temporarily abandoning any noble notion of conservative values for what appears, at least in the short-term, a winning populist approach. And in the process they may have constructed an attack plan too tempting for Obama supporters not to use. Perhaps the DNC may want to consider leasing the rights to run the Gingrich supporting Super Pac movie in the post primary season.
It would be a monumental shame if the cannibalistic rhetoric currently being generated by anti-Romney forces prevents us from focusing on THE key question - - how are jobs best created?
For most people, ‘VC’ is still perceived as a black art; most headlines are dominated by the large successes.
But small business is the engine of our economy. Engaging the hard-working, good people of this country, including out-of-work skilled workers, and sometimes skilled managers alike, is the key to our long-term prosperity.
The first step in what I can’t help but call the ‘reoccupation of America’ is to understand what has worked and how to direct the positive drivers of change.
VC backed companies are a major source of employment and R&D. Did VC create sustainable, competitive jobs? You bet it did. Just think Skype, Google, Apple, Intel, Facebook, Microsoft, Starbucks, FedEx, Amazon, and eBay.
As venture capital’s founding father, Georges Doriot advised, “The study of a company is not an autopsy; it is the study of men’s hope and aspirations.”
The industry’s beginning had a sense of mission and nobility. As professional coaches and capital allocators, our work is predicated on the free market’s selection of innovation -- the best product/service/technology with the best people should live, and those whose solutions don’t win sufficient customers and make money, will perish. The better the life/death decisions in funding allocations, the more and more highly skilled and sustainable jobs get created.
It is a tough and richly rewarding business that sometimes pays off. As with any profession endowed with the responsibility to make critical choices, with well reported stories of great wealth, there is the potential for resentment.
Give Rick Perry credit for at least distinguishing venture capitalists from ‘vulture capitalists’ (a highlight reel that will not be well covered); however the bigger impact of his and others’ rhetoric perpetuates a false impression of the critical function that VC’s play in our economy. This cannot stand.

Robert Finkel is president and founder of Prism Capital, a private investment firm. He manages a $190 million through a venture capital fund that invests in growing companies and a mezzanine fund provides financing to more mature companies. He is the co-author of "The Masters of Private Equity and Venture Capital: Management: Management Lessons from the Pioneers of Private Investing" (McGraw-Hill 2009).