Mitt Romney

Why Romney is wrong on jobs

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I am probably the least political person you may meet, in every sense of that definition.

Politics have no place in the establishment of an authentic meritocracy. And so I have no specific interest in following or taking sides in political debates (there is good and bad on each side of the aisle) that at best manage appease the interest of no more than 30% of the U.S. population. The majority of us have already voted against the current political system as the system incapable of representing the American people. Yes, just like our economic system, our political system is in desperate need of a major overhaul too.

But when Republican presidential candidate Mitt Romney makes a statement that in his role as venture capitalist (VC) he created all these jobs, I must correct him. It is a comment stemming directly from the playbook of the VC lobbying organization (the NVCA), which in unending attempts to legitimize the existence of Venture as an asset class, grossly puffs up the role of a VC vis-à-vis limited partners and entrepreneurs when there are credits to be had and hides behind the excuses of the macro-economy when their trailing 12-year performance remains, on balance, a negative.

The bottom line is that VCs do not create jobs, ever.

VCs simply arbitrate the committed investment dollars from limited partners to be directed to the unrelenting and groundbreaking ideas from entrepreneurs. VCs are the matchmakers between the assets from limited partners (money) and the assets from entrepreneurs (ideas), as we have clearly described in our innovation primer and our State of Venture Capital. Meaning, if the moneys committed to venture by limited partners were not deployed via Bain Capital the investment committee of an institutional investor would have deployed that allocation to some other VC firm.

The point is that in most cases we the people generate the jobs for ourselves, as we the people accumulate the cash reserves that allow for reinvestment, and we the people come up with the entrepreneurial ideas to extrapolate to business success. A VC is simply a derivative to the creation of value, not the originator nor the inductor.

But Mitt Romney skills in VC puffery matches well with the puffery so common in the broken system of politics. Venture capital and politics rely on identical old boys networks void of transparency to all marketplace participants and in blatant violation of free-market principles so that the people may never find out what really happens. And for Mitt Romney and many other politicians that may just be the continuation of their role and satisfaction in life.

Rebuttals on this article are posted here.

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About Georges van Hoegaerden

Georges is a serial entrepreneur, venture catalyst, 4x CEO, board director turned innovation economist (by fate). His ideas have raised $14M in venture capital and produced over $100M in returns. More.

  • Derek Kerton

    Isn’t the main problem with Romney’s claim, or moreso the press’ misunderstanding of it, the mistaken statement that Bain Capital was a VC at all?

    My understanding is that Bain would be better described as Private Equity. Is there any “Venture” at all in buying troubled and undervalued assets, divesting and profiting? I mean, I see that there is “Capital”…but even that comes highly leveraged.

    The true VC wins when a portfolio company offers the market something new, and grows to pay salaries, capital gains, and taxes. Wealth is generated for multiple stakeholders. The Private Equity firm is not similarly aligned with the positive social outcomes, although wealth may be generated, it is generally focused towards specific stakeholders.

    • Georges van Hoegaerden

      Well, much of VC today is micro-PE (I call subprime VC). But that is another bowl of wax. Many people, including VCs themselves are confused.

      Romney made his claims in light of his role as a VC, and I am disclaiming that in the general sense. It is one of those NVCA play book arguments in need of setting straight.

      I am sure if we dig deeper in his exact role and merit, we can find more issues. But I am uninterested in his political or personal disgrace, I am just trying to keep the sector free from foolish beliefs and claims without merit.

      Putting VC on an unjust pedestal (compared to LPs and entrepreneurs) is what harms the business of innovation.

    • brad harkavy

      So, I agree with your general thesis, Bain is primarily a PE firm who historically are not great job creators. That being said, Bain does have VC group which just closed on a new $650M fund according to todays Boston Globe

      • Georges van Hoegaerden

        Careful now. Just because you have a PPM that states you are a VC and able to land money from an LP, does not mean you are one. 99% of self proclaimed VCs never produce any consistent and monolithic VC returns for LPs. So, in actuality the majority of them have never earned the merit of VC, have produced double the amount of false negatives they invested in and continue to erode the opportunity for groundbreaking innovation.

        But regardless, VCs are the matchmaker (not the investor) in the marriage between the assets from entrepreneurs (ideas) and the assets of the LPs (money). Meaning jobs are created by supply (entrepreneur) and demand (LP) of innovation. To suggest that VCs create jobs is like eHarmony claiming it is responsible for child birth.

        Considering that Venture Capital produces negative 12-year trailing returns for Limited Partners, underperforms the consumer adoption rate during the same period, is proven wrong in its excuses by corporate innovation, delivers negative absolute returns vis-a-vis total moneys deployed, erodes public trust, and has turned overwhelmingly subprime, I would consider that claim an extreme long shot.

  • Wstapes

    It is not companies’/business’ purpose to create jobs, whether owned by Bain, other PEs or VCs, as public companies or whatever.
    The company’s objective should be to produce as much of whatever product/service it is in with the minimum of (also human) resources. The jobs that are created in the process are a happy and welcome societal bonus. And it’s as soon as that principle is forgotten that jobs are lost.
    De facto, thus, VC backed companies (or any succesful start-up) will create more jobs pro rata than in estblished companies, since they’re starting from zero.

    • Georges van Hoegaerden

      Yes, yet the point of the article is that Romney claims the creation of jobs which really is the result of capital allocation by LPs married with idea from entrepreneurs. The real asset holders in that marriage should get the credit for job creation. Not the “marriage counselor”.

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