In business nothing can sound as sweet as the above for an entrepreneur; PE/VC does have its drawbacks,
- PE/VC firms are more interested in short term gains (3-6 yrs), so they aren’t interested in long term.
- PE/VC investors are willing to take huge risks for every business opportunity which a normal business wouldn’t. It is similar to a batsman trying to hit a six of every ball, instead of playing the ball meaningfully for what it deserves.
- A PE/VC firm is more of a gambler; he invests in many companies and hopes that at least one or two turn out to be very successful.
- PE/VC firms have a bad habit of over riding a company’s management.
- A raw deal, the higher the stake a PE/VC firm holds in a company the bigger will be their return when they sells the stake to another party. So a PE/VC firm aims to value a company the least and tries to take a majority of the stake.
- All PE/VC firms invest in more or so similar industries or in successful industries.
But like I said these are two extreme versions of PE/VC industry, and one can get a fair deal and good returns from PE/VC participation with proper negotiation.
