Custom Search

Monday, January 16, 2012

The Difference Between A Venture Capitalist And A Vulture Investor

By Susan Duclos

An excellent piece over at Real Clear Politics by Aaron Goldenberg, which explains the difference between a venture capitalist and a vulture investor and why those criticizing the attacks against what Mitt Romney did at Bain are ignoring that very difference.

Many have suggested that attacks on Mitt Romney's service at Bain Capital are attacks on capitalism itself. That is hyperbole at its finest from those who do not understand the business Bain Capital was involved in.

Mitt Romney was NOT primarily a venture capitalist. A venture capitalist invests in early-stage businesses with the hope that they grow and prosper. These early-stage businesses are often risky investments. Though most ultimately fail, some succeed spectacularly making the risks worthwhile. Apple Computer and Google are two such examples. This is what Mitt Romney means when he says some investments succeed and some fail.

By contrast, Mitt Romney was primarily what is affectionately known as a vulture investor. Bain Capital invested in failing companies with the intention of either restructuring their business or stripping the business and selling its assets. This business model often adversely affects a company's employees. To be fair, if the company had gone bankrupt on its own, that would have adversely affected the company's employees too. The question Republican primary voters need to ask themselves is not whether Mitt Romney did anything illegal or immoral. In a climate of near 10% unemployment, do Republicans want a vulture investor to be the face of their party?

The attacks against Romney may not have been phrased right and many of us warned that phrasing is important in this type of attack because criticism against Romney and Bain can easily be twisted optic-wise into false accusations of criticism against capitalism itself.

There is a difference between a venture capitalist and a vulture investor and Goldenberg's explanation is one of the best I have seen.


You can simply see the difference in the definition of the two terms.

Venture Capitalist:

A venture capitalist is a person who invests in a business venture, providing capital for start-up or expansion. Venture capitalists are looking for a higher rate of return than would be given by more traditional investments.

Vulture Investor:

An investor who attempts to profit by buying debt of bankrupt or credit-impaired companies. Vulture investors are generally interested in the debt of problem companies that hold substantial tangible assets.