Amid all the political focus on "venture capital" and "leveraged buyouts," the discussion among Republican candidates, in the media and in Congress has been remarkably fact-free. Perhaps this will help.
First, these type of investments are not the same thing.
Venture investing virtually never results in the loss of jobs, the failure of businesses or really anything other than the potential for the founders of the company to lose control -- in exchange for other people's money funding the company's growth. If the venture succeeds, everyone wins.
If it fails, as the great majority of them do, the venture-capital fund loses its money.
Leveraged-buyout firms, like Mitt Romney's Bain Capital, suffer from two troublesome realities: 1) Their use of financial leverage (borrowing a lot of the purchase price from banks, insurance companies, etc.), and 2) their need to sell or refinance the business and take money out within a three- to eight-year period to provide investors their expected return.
The first reality -- leverage -- robs the company of options and of the ability to weather a difficult economy or an industry downturn.
The second reality -- a short time horizon -- requires that the business grow or be marked down and gotten off the books before it hurts the fund's rate of return for its investors even more.
When businesses fail -- including failures caused by carrying too much debt on the balance sheet to have flexibility -- then everyone loses, but perhaps most achingly, the employees who will lose their jobs.
