Private equity ruins tech companies(blog.zmh.org) |
Private equity ruins tech companies(blog.zmh.org) |
" ... owners focus on aggressive cost-cutting and “streamlining” operations to boost short-term profitability. This is extremely destructive, leading to mass layoffs, reduced benefits, and wholesale outsourcing. "
could just as easily be used to claim "tech companies ruin tech companies."
"Private equity backed companies are 10 times more likely to go bankrupt than public companies." - is this because they're running successful companies into the ground or because the kind of companies that get eaten up by PE are the ones that are failing anyway?
the PE firm pushing them to do something drastic, but low chance of success, in the hopes of turning the fortunes around.
And there's nothing wrong with that imho - if it was going down, might as well chance a lottery ticket. The people who lose money are the PE investors, who knew the risk coming in.
In a former life I evaluated WordPress, Drupal, and some other open source CMSs. Drupal seemed remarkably terrible. Maybe I just wasn't the target user...but UI, UX, and DX all seemed blighted and the ecosystem much less vibrant than WP's. Came away thinking it was a vestige of yesteryear, and not something in which to invest any time, energy, or money.
Maybe that's a harsh take on Drupal, but one already-seemingly-in-decline property from which one PE firm extracted value... if over-extraction and under-investment really is a systemic problem of PE, there must be many more, much better examples.
Needless to say, the founder got a good paycheck but we were left holding the bag.
It was a bloodbath and they completely ruined the culture, product, morale, and any semblance of growth. It was personally the most stressful period of my working life...
From then on, the moment that I see private equity mentioned anywhere, I know its time to run.
The sales started to slump for the product I worked with, and they decided to make up for it by raising prices. They figured they would make more money than they lost by alienating customers. The other thing they did was drastically ramp up license compliance shakedowns (one of the shadiest practices I have seen in the industry).
The product and company are still around because bits got sliced up, spun off or sold off. PE no longer has its tendrils in it, although I am not sure who does now.
I feel like this article is essentially a smear piece - wpengine is associated with private equity therefor is not deserving of sympathy. Or something like that.
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PEs tend to target investments in mature companies instead of early stage to growth stages companies.
It's just another form of capital for companies that have decided to stay private, or wish to return to private ownership.
Oftentimes, if leadership makes the choice to do one or the other, that means the company isn't doing as hot, because until recently, listing publicly and raising capital on a strong listing was fairly doable.
That said, imo this does lead to a bit of a bias about the outcomes of PE ownership, because if you are choosing PE ownership, that often means investors and potentially even leadership just want an exit and don't care as much about the underlying product anymore.
Some founders are more than happy to sell at a lower price if they think the lower bidder will be a good custodian of the company.
“Good custodian” is relative, but often means things like treating existing employees well, trying to maintain the best parts of the company culture, keeping clients happy, keeping the quality of the product or service of a company at a high level, etc.
Sometimes founders realize that an extra bag of money on top of the multiple bags they are already getting won’t buy them self-respect.
Fiduciary responsibility can make this murky sometimes, but that’s a cop out more often than not, imho.
That's not to say it's good. It's just another investor tool like VC money. And it's probably also a simplification to say it's all about short term profit when they talk about being able to take companies on longer term strategies than the public market would allow for.
https://www.theverge.com/23642104/barnes-and-noble-amazon-bo...
That niche is probably just in big, educated markets. Like the B&N in Northern VA I used to go to in college is still there. But at a mall in rural Idaho, probably not so much.