I feel your pain about what happened. I've seen comparable things a few times first hand. My learning was: just leave once the change starts, only stay if you're getting something out of it. It's not my company, I'm only in charge of my life, I'll find something better soon.
I think I would not recommend to run once PE is mentioned, it can also change for the better, but it can be a red flag to look more closely.
This doesn't make it any better for the, you know, entire rest of the company.
It's important to remember that this startup industry relies on selling dreams to idealistic young grads who will usually end up under the bus while the higher-ups walk away with the profit, if there is any. And a lot of us here are complicit, because we rely on cheap labor and false promises to get the next company off the ground.
Once you see your first exit where the CEO walks away with $10+ million and every single other employee's stock (even the first few engineers) was made worthless in backroom dealings, you get jaded about the way this entire business operates.
Usually if a company fails, it happens in slow-motion. As an employee you can often spot that years before it makes the news. Just move on before it makes the news.
PE fucks up everything most of the time, hurts the majority, and I hope I never encounter it again in my working career.
Its been a while but it still brings out some bitterness. I did leave after an year but the damage had been done by then.
As a customer, rather than an employee, that's what I learned too. If a PE firm buys a company that I do business with, the best thing for me to do is to stop doing business with them.
A PE bought a majority stake in the company I work for which for 40 years was a family owned company.
They said they were financial partners only, non-operational and they bought because they liked how we were.
It's been years since and things have only gotten better as far as I am concerned. I mean they were pretty great originally when the family owned it and I had no complaints, but the culture and engagement and such has only gotten better, and the company is growing faster and becoming even more profitable than ever before as well.
I mean why would people write comments about how such a thing went smoothly and well. People do now and again but not usually spontaneously.
Part of why I felt I should share my own experience. Hard to know what % of PE acquisitions the workers end up liking vs. hating, but I bet it's not as many bad cases as it seems from media or online comments.
A similar thing to what you described happened at a software company where I used to work at, culture destroyed, many people let go. I will name and shame the PE firm - it was Hg Capital
However currently, I've been at a company for a few years who is owned by Morgan Stanley Capital Partners, and it's a completely different story. The culture is great and hasn't changed at all
Bought by a growth equity fund? Probably fine. Bought as part of a roll up? Probably screwed.
PE is like tech: similar tools, but very different firms.
They bought us not for our technology but our customer base. They intended to convert them all to their other firm's product. Little did they know that a lot of our customers had left the other firm for us because we treated them better.. So what happened is in addition to the back office staff & sales staff being laid off, they laid off the developers & testers too (they kept a few managers for a year for continuity). I realized this when the folks they sent to town refused to go to lunch with us in an rather awkward moment.
Always appreciated and very helpful. Nothing in this comments suggest that it deserves any downvotes.
PE usually doesn't have any special connection to your sector or community. They just buy stuff and try to run it according to bog standard MBA rules.
I know you said usually, but it really does depend. Thoma Bravo would be an example of one that is tech sector focused. Not that I like TB, just saying that doesn't always apply.
These are all just anecdotes. My experience doesn't override yours, but I'd be careful drawing broad conclusions.
I think sometimes PE gets a bad rap because they can be a "buyer of last resort" for companies that are already struggling.
Of course there are LBO scams going on (more historically rather than currently) but these billion dollar firms don't come in and lose a ton of their own money along with money of their outside investors on a regular basis.
Then their purchased company gets bankrupted, sells their assets to cover their debts (including said PE's 'debts' of services provided.)
They probably make 200-300% of their initial investment back by paying for the initial purchase with debt that is tacked onto the purchased organization and simply drain them dry. PE doesn't make a ton of money by being dumb, they make a ton of money using any and all tactics necessary to make big stacks in short time. Obviously not all PEs operate like this and there are likely many loopholes and strategies.
They bankrupt it by basically pumping it full of debt while taking money out and dumping it once it's out of money - zero liability with a LLC right?
You assume lenders are fools. They aren't. They'll ask for a cosign of an asset holder other than the LLC.
No, it's one of many PE strategies. Almost all private equity firms utilize leverage in some form, but it's not universal and certainly not as extreme in all cases as the LBO shops.
LBO is how the PE firm finances the acquisition. Think of almost exactly like a mortgage. The bank ( = investment bank) doesn't want to maintain/manage the house ( = company) so they help fund the acquiring cost. Typically it's 50/50 (50% the PE firm uses its own fund and 50% it uses a loan from an investment bank "mortgage).
Post close, they might utilize a credit facility (usually a bank loan) where they can put debt on the company's books for specific initiatives (add-on acquisitions, hiring, etc.). There are some huge advantages to this because they usually can get loans at way better rates than a company could get if they went to a bank and got an SBA loan, venture debt, etc.
Today I would guess it's most associated with the Toys R Us and Sears failures, but surprisingly no one tends to talk about the Best Buy LBO for some reason...
On How I Built This, they frequently talk to companies that were bought out by PE. Some had negative experiences, but the majority were positive.
That's because this strategy is only normally utilized by the biggest PE firms (Apollo, KKR, etc.) who acquire large businesses (Toys R Us, Instant Brands, etc.) and those sell headlines. Net on net returns, it's much harder to turn a $1B biz into a $2B, versus a $10M business into a $20M business. So the large funds typically do a ton of creative financing to achieve returns and hence how they essentially bankrupt the companies. Sub $1B acquisitions usually this strategy doesn't make much sense.
I can see how it would feel like the PE firm is ruining the business to a current employee. Projects that you worked on, saw a lot of money poured in to, that you personally still believe in; get shut down and you think "why would these idiots buy that just to shut it down? Must be finance shenanigans involving write offs and shell companies" when really they valued those projects at $0 or less when they bought the company.
So technically there should be more wins than not. At least on paper. How that looks for lower level employees may be different but often PE is there for a reason.
If you built the boutique business to get a payday, maybe you’d consider that a win. The market certainly would.
If you built the boutique business because the megaco had a monopoly and was stagnating and awful and you believed in a vision where you can do better — then the PE firm just forced you to take an L by selling to that same megaco and hollowing out your business to just become another head of its behemoth.
If you built the boutique business to work with your favorite people in a non-hellish work environment and ensure they all get to live comfortably — you’ve probably developed cirrhosis from all the regret you’re drinking away.
You could apply your first sentence pretty directly to MLMs, for instance.
It's pretty much exactly how a growth-focused PE is supposed to work so one would hope it has actually happened that way at least a few times.
It's like wondering why every farmer has a similar story when a locust swarm comes.
The PE clients I work with are very growth orientated and understand that culture is important for growth, so I don't believe you can paint the whole space with one brushstroke.
I am of the opinion if PE destroyed this company’s culture and strip/sell it off, it’s certainly deserves it and will be better for everyone involved.
This place worked for decades as a cost center. It never made money, routinely losing $10-$40 million a year. Multimillion dollar deals were negotiated and made with handshakes, biting is in the ass. The engineers spent their time making shit, over engineered products with no regards to the little customers we had. Our suite of products have no interoperability. Just last week i again repeated why to a couple of “top engineers” why having single sign on across Our products makes a good customer experience.
PE is a tech boogeyman here on HN and Reddit. But now I wholeheartedly believe that’s Sometimes PE needs to come in and shut things down.
There was a bloodbath and they ruined the culture, the product and the morale. I never realized the meaning of a "cutthroat" culture until that time. It was personally the most stressful period of my employment.
From then on, the moment that I see PE mentioned anywhere, I know its time to run.