Published May 29, 2012
With the attacks coming at Mitt Romney about his background and how the skill set he possesses doesn't match up to the skills required to be president, I thought it warranted a deeper look at the skills required to actually be a private equity guru/venture capitalist.
One of the key skills required is that in order to be very good at this profession you need to be great at assessing where and when to invest money. You need to be artful in analyzing all the variables that can affect your final decision: the business climate, identifying where there is waste, overlap, opportunities for growth, opportunities to make investments for expansion, looking for synergies with other trends and businesses, tax implications, long-term prospects, the competitive landscape, marketability of product or service, world-wide interest, the ability to anticipate government regulations or proposed opposition, and whether the investment meets the risk return framework you desire.
This analysis must be done on every business and industry, assessing the positives and negatives, prior to making an investment. However, after making the investment, your work isn't over. You need to roll up your sleeves and often take an active roll in the management of the business, offering intellectual capital. That is usually why the company invited your capital in the first place.
Remember, PE companies are invited to make investments. The discussion that these companies make hostile investments is purposefully misleading -- you cannot take over private companies unless they want to be sold. Rick Perry popularized the term vulture capital in relation to Romney and Bain Capital, and it is just not true. Perry was completely off base and is 100% incorrect.
You must be able to do all of this while carrying a tremendous amount of responsibility -- because the money that you are investing isn't your own, it is for clients that invested in blind pools for you to oversee. For every investment that a private equity/venture capitalist makes,their are 100 that they don't make.
Often times we forget just how diligent and careful these people are with the money they have been trusted to manage. One very famous venture capitalist once said to me that often the best moves he makes are when he chooses not invest. A great private equity/venture capitalist spends an enormous amount of time looking at opportunities -- but will often make the decision not to invest.
President Clinton is often credited with overseeing the country during a period with great economic expansion and low unemployment. With a closer look, you can easily see that this wonderful time period was the direct result of the high-tech boom. Who funded these high tech companies? Since the banks wouldn't take the risk at that time, where did that money come from?
The money and people who spawned the boom were from private equity/venture capital firms. President Clinton benefited from the likes of Bain Capital, Austin Ventures, Benchmark, Sequoia, etc. These companies assessed opportunities, backed them financially and strategically, and we saw a great boom in this country.
So this election comes down to this: do we go forward with policies that have this country on the brink of a financial disaster, or do we get a new leader at with the correct skill set needed to get us on the right path for prosperity?
Ed Butowsky is an internationally recognized wealth manager. His upcoming book titled "Are You Committing Financial Suicide?" is expected to be released this spring.