Vulture capitalist
Vulture capitalists are investors that acquire distressed firms in the hopes of making them more profitable so as to ultimately sell them for a profit.[1] Due to their aggressive investing nature, and the methods they use to make firms more profitable, vulture capitalists are often criticized.[2]
Distinguishing between venture and vulture capitalists
A venture capitalist is an investor who provides funding for start-ups, early stage firms and companies with growth potential.[1] These types of firms seek out venture capitalists, as they are too small or too new to have credit profiles, making them ineligible for bank loans and other forms of raising capital.[3]
Although risky, venture capitalists invest in firms as there are very lucrative returns on their
On the other hand, vulture capitalists provide a final attempt at gaining funding.
Once the firm is acquired, vulture capitalists can attempt to increase efficiency in order to turn the company around. This is often done by cutting costs wherever possible, which in part is likely to be accomplished by firing workers where possible, reducing
Criticism
Vulture capitalists receive a lot of criticism as they often go for firms that are in very poor shape,[4] meaning these firms are unable to secure capital from banks or even venture capitalists as they are too risky an investment.[3] Due to this, vulture capitalists are able to acquire the firms for prices that are often very low considering what they would have been if the company was not currently under pressure, or if other participants were bidding on it.[4]
Once vulture capitalists acquire a firm, they often fire workers to reduce costs,
For the same reasons, venture capitalists can be accused of being vulture capitalists, or "vulture" for short, depending on how they conduct their business.[8] In this sense, vulture capitalist is used as a derogatory word for venture capitalists, as the vulture capitalists are considered to be preying on firms in distress for their own profit.[2]
See also
References
- ^ a b c d e "Definition of Vulture Capitalist". Investopedia.com. Investopedia. Retrieved 16 October 2014.
- ^ ISBN 9780071476386.
- ^ a b Hendricks, Drew. "The 5 Best Ways To Raise Capital". Forbes. Archived from the original on July 25, 2014. Retrieved 16 October 2014.
- ^ a b c d e f Lund, Marcie (29 May 2014). "Venture vs. Vulture Capitalists". missionwealth.com. Mission Wealth. Retrieved 16 October 2014.
- ^ Feld, Brad. "How Do VCs Mitigate Risk In Their Investment Portfolios?". AsktheVC.com. AskTheVC. Retrieved 16 October 2014.
- ^ Arthur, Harold. "Vulture". Birds life. Retrieved 26 September 2023.
- ^ a b c "How Did Mitt Romney Get So Rich?". YouTube.com. YouTube. Retrieved 16 October 2014.
- ^ "Vulture Capitalist". Financial-Dictionary.com. The Free Dictionary. Retrieved 17 October 2014.