February 15, 2012 guest post originally published at: peHUB
Recent attacks against leading GOP presidential nominee Mitt Romney depict him essentially as a brutal, bare-knuckled capitalist when he ran Bain Capital. They shed a very unflattering light on the private equity world. Romney rivals have cast him as a “vulture capitalist” that took over companies, aggressively sold significant assets and fired workers to maximize profits.
This is highly exaggerated hyperbole. The fact is, private equity firms make significant investments in companies to help super-charge or resuscitate their growth. Sometimes these companies are underperforming industry peers and could be in trouble, but most often they just need private capital to fuel a well-structured expansion strategy. And private equity firms don't make a profit unless they significantly improve the company's state of affairs.
Private equity is different from venture capital. It can be effectively used to bolster the growth of a venture capital-backed company. In fact, at Claremont Creek Ventures we often use private equity to help fund momentum in our portfolio companies. A good current case in point is SST, Inc, formerly known as ShotSpotter, a Claremont Creek-backed company that is the world leader in gunshot detection and location technology –their ShotSpotter system. SST, Inc. is now seeking growth capital –essentially private equity– to grow its business by aggressively expanding into Brazil and elsewhere in Latin America and acquiring a synergistic data analytics company.
SST Inc. is primed for growth fueled by private equity. It has deployed a total of $50 million in venture capital and owns virtually its entire market. More than 65 law enforcement agencies in the United States and elsewhere have deployed its technology. In short, most risk has been flushed out of its business model, and now it's time to turn to private equity financiers, who are great at further developing expanding businesses, rather than venture capitalists, to help grow further. In the case of SST Inc., a private equity investor needs to be mindful only of the company's execution, not its strategy.
We're not viewing private equity as the “enemy,” and we don't expect SST employees to, either…
Read the full article and comments at peHUB
The New York Times picked up Randy's piece at peHUB “Early Stage Investor Defends Private Equity | Randy Hawks, a co-founder and managing director of Claremont Creek Ventures, writes in peHUB that private equity “can be effectively used to bolster the growth of a venture capital-backed company.” – PEHUB