Yep, you’re a venture capitalist if you’ve ever paid any taxes. No, we didn’t know that either, until the other day. Then, on a very interesting program we’ve discovered, Up with Chris Hayes, on MSNBC, Dr. Bill Black, a very articulate associate professor of economics and law, explained it like this:
Venture capitalists, folks who have a lot of money and want more, look around for struggling businesses, buy them, reorganize them, and then at one point or another, whether the reorganization is successful, they sell them at a profit. Now, how do they make that profit? Well! As we all know, there are always federal and local programs to help blighted areas and businesses with tax subsidies and grants to encourage renewal. So when the venture capitalists buy a business, they immediately apply for all possible subsidies and grants, and as I understand it, either the business itself becomes more viable because they have a good product and their management gets strengthened and the business prospers, at which time the capitalists sell it at a profit, or the business itself cannot (or never could) become profitable, and its assets including any remaining funds from grants are liquidated, the proceeds of which go to the investors, the capitalists, at which time it is scheduled for bankruptcy.
Now in many ways this is an understandable process, because first of all the targets of venture capitalists are already in trouble and a lot of times the injection of capital (including grants and expertise) make all the difference and the businesses thrive. And it is not unusual for businesses to fail from time to time. The question about business failure in businesses acquired this way would be, for me, wouldn’t the so-called experts know that the business and/or its product was not predictably viable, so the answer would seem to be that, yes, they knew that, but pre-designated it as a candidate for liquidation.
The other element that occurs to me is that venture capitalists promote themselves as kind of the “Mighty Mice” of the business world. You know, “Here we come to save the DAY!” But the factor of public funding from those grants and tax subsidies creates a whole other aspect of these ‘do-gooders.’ Because the terrible cynicism I have really-o, truly-o compels me to suspect that with all that expertise, they simply take on a certain number of investments they can sell profitably and a certain number of investments they can liquidate profitably.
So what I want to know is, when are these ‘awesome’ venture capitalists going to thank me and you for our contributions? And when are we going to get a return on OUR investments?