There’s a fundamental reason these two Romneys have emerged: During his time at Bain, Romney pursued two very different kinds of investments — venture capital and private equity — that have had very different political ramifications for his presidential campaign.
First, there’s venture-capital Romney — the Bain businessman who invested in fledgling start-ups, typically through obtaining a minority stake. This is the version that Romney himself likes to tout on the campaign trail. In his early years at Bain, Romney helped make deals like the $5 million investment sunk into Staples in the 1980s — buying a minority stake that ultimately made Bain $13 million when the office-supply store went public in 1989. Bain was also among a handful of venture-capital firms that helped found the Sports Authority through another minority stakeholder investment.
Though they were prominent during Romney’s early years at the firm, such start-up investments are now only a fraction of Bain’s portfolio: Bain Capital Ventures currently manages just $1.5 billion of the $60 billion of the firm’s total global assets, according to the firm’s Web site. Nevertheless, these are the Bain successes that Romney has placed at the heart of his campaign. Though start-ups typically have a high failure rate, two of Romney’s biggest VC successes became big household brand names. When asked to back up Romney’s claim of having created 100,000 jobs, his campaign explains that 94,000 of those jobs are those that Staples and Sports Authority alone have created to date (that is, long after Bain’s involvement had ended). And Romney himself presents his venture-capital side when explaining his business background to voters. “For a while I worked in what’s called venture capital — what is that?” he asked voters Monday in Rochester, New Hampshire, according to Bloomberg. “When you have other people’s money and your own invested in something, you’re very careful with it.”
On the flip side, there’s private-equity Romney — the Bain businessman who pursued corporate buyouts that typically secured majority control of mature firms, helped reorganize them, then sold them off a few years later. These were Romney’s business deals that scored the biggest gains during his time at Bain — and those that were significantly more fundamental to building Bain’s industry-leading reputation than the small venture-capital investments that dominated the early part of his business career. Ten of these private-equity deals produced 70 percent of the dollar gains that Bain made during Romney’s tenure from 1984 until 1999 — or about $1.75 billion in total — as the Wall Street Journal points out.
But these private-equity deals also resulted in some of the most high-profile bankruptcies and job losses that Romney’s political opponents have seized upon. Four of the 10 companies that made Bain the most money under Romney went bankrupt, the Wall Street Journal points out. In 1992, for example, Bain invested about $5.1 million in American Pad and Paper and reaped an estimated $102 million four years later when the company went public. Ultimately, however, AmPad would go bankrupt in 2000—and the Democratic National Committee has highlighted the workers that lost their jobs in the aftermath.
Bain still prides itself on being an industry leader in private equity. “Bain Capital Private Equity has raised ten global funds and made more than 250 investments. The private equity activity includes leveraged lyouts and recapitalizations in a variety of industries,” the firm’s Web site proclaims. But it’s the part of Romney’s business background that candidate Romney tends to downplay. The only private-equity buyout that Romney routinely mentions on the campaign trail is Domino’s Pizza — a household name that hasn’t gone belly up.
But the distinction between the two sides of Bain — and the two sides of Romney the businessman — has been frequently lost, both among the political players and the reporters covering the debate. Romney is often described simply as a “venture capitalist” and Bain as a “venture capital firm,” perhaps because the vagaries of private equity might be lost on the general public. But the difference between the two kinds of investments is key to understanding whether Romney’s time at Bain is a political asset or a vulnerability.
*Update: An earlier version of this post referenced a quote from Bain & Company, the consulting firm that is distinct from Bain Capital, the firm that helped Romney found. The section has been corrected.