Why can't all companies be venture capitalists?

A part of good corporate governance is that a company, its board and its managers maximize returns to shareholders with as little capital as necessary.

Ever wonder how venture capitalists have been able to outbid others, including companies in the same business, and STILL make significant returns? Even outbidding those companies that eventually buy those same companies from the venture capitalist, and still generate return on investment above what most companies can.

The venture capitalist's secret is that they hire the best management, pay them for successful performance and finance as much as possible by cheap debt.

The rest is gravy.

Take over the company, use as much debt as possible, make it efficient, both in revenues and in costs, including investing for the future, keep a tight control over surplus cash, and sell a strong, well run company at a full price. Repay the cheap debt and be left with 30%, 40%, even 200% return on the small capital invested in the first place.

We can all be venture capitalists.

Invest in companies, hire good management, pay them significantly on performance, maximize the cheap debt the company uses (which also keeps management on their toes), invest for the future, build the business, and return ALL excess cash to shareholders, as soon as it is generated.

Return on equity invested will skyrocket, just like the venture capitalists do!

So when I hear about a company that has repaid all its debt, I am hearing about a comfortable management and a low return on equity.

When I hear about a company with surplus cash (and there are many of them about at the moment) which it doesn't know what to do with, (make an acquisition, keep it for security....I don't know...), I am hearing about a comfortable management and a low return on equity, with a high propensity to make an empire-building and expensive acquisition.

Let us all be venture capitalists. Our bottom line will benefit.

OAM