Private equity is a mixed bag, but generally, I think it’s a good business model. They have Limited Partners (“LPs”) who give them significant capital to create/start a fund. In almost all cases, the PE firm puts in 30% of their own cash in the fund, so they are in it to make money.

The firm’s analysts and partners evaluate and buy companies with this fund to create value for their LPs, because there are synergies between these companies, like buying raw materials at a discount, better supply chain management, better sales channels, etc. Most companies sell to PE because they do not have the capital to scale the business further. Others just want to a paycheck and retire, but most PE firms want the owner to stay around and run the business. These funds generally last 4-6 years and all the companies are sold or rolled to a new fund if they are not ready to sell after 5 years. PE firms that don’t return 2.3x to their LPs on a consistent basis, don’t last long. So PE is buying companies and then selling them for a 2.3x return (on average), which is really good.

Is all PE good? No. Are they all bad? No. No PE firm buys a company to lose money and generally the best way to make money is to have engaged customers who buy their products. I can assure you these corporate and PE folks have evaluated the return on sponsorship dollars and if they don’t see a positive ROI, they are going to cut it, just like we’d all do in our personal lives. Also, most PE companies acquire a company and then leverage them at 5-6x EBITDA, which is very normal. As the cost of capital increases (interest rates are 10.7% for most PE portfolio companies), they are going to look to tighten their belts until rates drop.

I’ll give Ben credit. He’s created his own revenue stream on YouTube and with 500k viewer, so he has a revenue stream there. HelloFresh is one of his sponsors on his YouTube channel. Guess who owned HelloFresh and helped them go from 200k subscribers to a company with $6B in revenue? Private Equity….They did this by buying Factor, Green Chef, and other smaller competitors and used the synergies to increase their profitability before they went public.

Not all PE is good and not all PE is bad. I can tell you after having worked with PE folks for several years, they are some of the smartest people on the planet, but MOST have zero experience running a company, but they can usually attract board members or operating partners that have run small to big companies very successfully. Those folks serve as advisors. Some of good, some still want to run the company.

At the end of the day, capitalism is cruel and there are winners and losers. Trying to make a living in a skill/sport that has no real audience is always going to be a challenge. The best professional fisherman is never going to be as wealthy as a professional golfer, basketball or football player. There’s no real revenue from tickets, there is no concession sales, and there are no stadium naming rights. Lastly, making a living is going to be tough when most of the prize money is derived from tournament entry fees.