Hacker News Reader

Comment by neves | Hacker News Reader

Are there any evidence of private equity providing benefits for society? Sometimes it looks like they have a inverse Midas hand, everything they touch putrefy.

View on HN

There's this meme that private equity companies are vultures circling overhead looking for prey, and when they find a poor innocent victim they swoop in and destroy it. I worked at a PE firm in the past, and my understanding was that the companies we bought were all looking for buyers because they were already failing. So a company that would otherwise have to close looks to the PE markets for help. The PE firms say, ok - we'll buy you out and then we'll require you to change your business so that you become profitable. The stated goal was to buy a struggling business, fix it up, and then sell it a few years later. Didn't always work, obviously.

In any case, the failure starts with an unsustainable business model. Travis CI management set up a business that ultimately failed to the point where they needed to be rescued by a PE firm. If you want to complain, complain to Travis CI management. They're the ones who failed you. The alternative to the PE buyout was not Travis CI continuing as it had always been. It was Travis CI closing shop.

(I don't really know the details of the Travis buyout. Maybe there are other factors at play. In just giving a perspective on how these things often work. )

Doesn't change the fact that being bought by a PE firm is a very bad sign for customers of the business.

For something easily switchable like your favorite retail shop you can - and should if you don't want the collapse to hasten - continue as before, but for something your business depends on like CI it's a huge red flag that you should switch to a different supplier.

> Doesn't change the fact that being bought by a PE firm is a very bad sign for customers of the business.

Is it worse than company collapsing though?

With that, you might not even have a warning sign.

Well, a collapse gives you certainty.

And how often are companies castigated on here for getting acqui-hired and shutting down?

Seems like it’s a damned if you do, damned if you don’t scenario.

Agreed. When a service gets bought by a PE firm it's a bad sign. It's not the cause of trouble but a sure symptom.

You're getting the cause and effect backwards. Private equity generally buys companies that are already in rough shape and tries to turn them into something profitable (which often means a lot of cost cutting). That's an important part of the ecosystem. If anyone's harming society it's the VC ecosystem that gets companies hooked on free money and encourages them to burn it as fast as possible, blocking sustainable businesses from playing in that space.

> If anyone's harming society it's the VC ecosystem that gets companies hooked on free money and encourages them to burn it as fast as possible, blocking sustainable businesses from playing in that space.

It's even worse: VC "burn money" is way too often actively destroying and undercutting existing businesses in the guise of "disruption", and then once the competition is dead, prices rise to way higher than they ever were before.

Cases in point: Uber (destroying local taxis and then milking the customers dry with "surge fees"), AirBnB (literally "disrupting" all the neighbors around the illegal hotels), Facebook/Twitter (which competed with sustainable, moderated alternatives and now "disrupt" entire elections by allowing propaganda and lies unchecked), Doordash/Grubhub/whatever, they're all bad by actively MITMing and otherwise extorting restaurants, Yelp (again, extorting small businesses), Amazon (even though they're not using VC money, they're still burning down physical stores).

> and then once the competition is dead, prices rise to way higher than they ever were before

Though it hurts the current businesses, the high prices won't last long. New competitors will see the chance in same services with lower prices and they'll go in. The problem is actually regulation and lobbying, which making new players harder to emerge.

> The problem is actually regulation and lobbying, which making new players harder to emerge.

Regulation in many cases, especially in those I mentioned, makes sense:

- Taxis should not be allowed to discriminate for anything, especially not skin color. Also, at least in Germany the fares are regulated to ensure people are not ripped off in "hot times".

- Hotels, and most AirBnBs are de facto hotels, are regulated to prevent issues with fire safety, theft, privacy, noise complaints (it's illegal to build hotels in residential zones for a reason) and many others.

- Something like Grubhub putting their own intercepting phone number in Google results via shady SEO tactics and charging people for any call is just ripe for abuse by competitors, additionally it's extremely unfair.

I don't mean those kinds of regulation, some regulation are definitely needed for the better.

However there are some regulation that are made for the sole purpose of defending the existing players and keeping new players from coming into the market.

Some licenses have requirements like that, such as requiring some documents or certification before operating, meanwhile the existing players may not have them.

At the same time some of those market disruptions need to happen and the incumbents were probably never going to get there.

A single, open source, interface app needs to exist for co-coordinating 'radio cabs' and it needs to work for _all_ cities. Ubur/Lyft are somewhat close, but that market platform and co-ordination would never have happened without them.

Hotels / housing are an issue because of predatory monetary practices. As a society (at least in the US) we don't have planned community retirement, so anything expensive becomes a defacto investment vehicle. This leads to a preference for any policy that inflates the cost of housing, which directly leads to NIMBY and combines with anti-sprawl measures to constrain supply. At that point basic econ101 applies and prices just keep going up without ever correcting (anywhere jobs exist).

Social media and the other MITM attacks are probably symptoms of the same issue; yet I'm not quite sure what a true root cause and solution are. It might require personal AI secretaries or something similar that are interest aligned with the individual users, rather than any corporation or government. (To facilitate schedule arrangements that are optimal.)

> At the same time some of those market disruptions need to happen and the incumbents were probably never going to get there.

It is always a question: is this "disruption" worth the cost - minorities and the poor cut off from taxis, illegal hotel operations robbing people (again, in many cases poor and working class) of their sleep, and trust in democracy as a whole?

Disruption was necessary, these markets were already broken. The (current disruptions) listed (in what I replied to) weren't the correct form of disruption.

^^^ The correct short version of my statement above.

The PE firm that had a take in a company I worked for wasn't hostile. They held a pretty long term stake too from what I know about the history of the business.

I am not sure if it counts as providing a benefit to society but I think the Dell private equity process(taken private in 2013 and reintroduced to the public market in 2018) is generally considered a success from a business standpoint. As mentioned in sibling comments, a lot of private equity investments are an attempt to do something similar.

Like a lot of private equity takeovers, Dell is now riddled with debt and having issues with debt load

https://webcache.googleusercontent.com/search?q=cache:zDTt0E...

In the old days they provided growth equity to businesses that generally wouldn't have access to that capital. Now I'd say your observations are pretty much accurate.

https://www.youtube.com/watch?v=62kxPyNZF3Q

It's possible that the CI market is just too competitive today and that resources allocated to Travis CI, including developer time, would be better spent elsewhere.

Like everything else in finance, they do good by making their investors money. These investors then can use the money for fulfilling their purpose/charter/business plan.

For example, a school could use its endowment to give out scholarships, a pension fund pays out retirees, etc etc.

I would challenge the conceit that 'they do good by making their investors money.' They make their investors money, full-stop. Perhaps their investors choose to do good with that money, more likely, they choose to do business with that money. The private equity at no point ever did good through the act of making money, they did their job.

I think the thing here is that anyone can do good while making money- for instance, the longer-term PE groups mentioned around this thread that have respect from the companies they now own, or the factories that make sure that their employees are safe, paid well, and allow a work/life balance, or the finance companies that donate to charities and the like. The issue is that when money becomes the primary motivator for getting out of bed in the morning- and ethos and pathos get thrown out of the window entirely- you get companies who don't care about their employee's well-being or who don't care about the people on the other end of the line.

> Like everything else in finance, they do good by making their investors money.

During the financial crisis we saw that in finance, they do good by making their principals money. The investors can go F themselves if they're in the way.

Executives became dynastically rich by bankrupting their companies.

The heads of Lehman Brothers and AIG Financial Products, Dick Fuld and John Cassano are classic examples.

Like all the apps you are using now ;) haha, whoops.

my state run pension invests in private equity funds to diversify the portfolio

Reply on news.ycombinator.com