"So now the VC lends the money from the bank"

"lends" -> "borrows", right?

mbrumlow 2 hours ago | parent | next [-]

No dude. Read it again.

The VC lends (the money from the bank) which the vc borrowed, to the clinic.

They are a sort of middle man. It the clinic is on the hook to the bank and the Vc takes fist cut before playing the bank.

Eg. The vc only risked the company they were buying, and gets paid first.

▲

NoboruWataya an hour ago | parent [-]

If the VC borrows money from the bank and lends it to the clinic, the clinic is not on the hook to the bank. The clinic is on the hook to the VC and the VC is on the hook to the bank. Which means that if the clinic goes under, the VC takes the loss because it still has to repay the bank.

▲

mbrumlow an hour ago | parent [-]

Nope. The clinic is the collateral to the bank. VC stand to loose nothing.

It does not happen overnight. But what happens is after they take control of the clinic or company they change the sales model to boost reoccurring revenue, this then allows the clinic or target company to take loans out. Because they look good on paper. The company then pays VC back when then pays bank back.

This can be done in about 6mo to 1 year process with some companies. The initial out of pocket expense is small and paid back very quickly.

I also forgot. Sometimes they will take the newly owned company and merge it. During that process they extract more money and load more debt onto the remaining entities, again making the VC money.

In some cases they can even get huge tax benefits by loading the company with debt which offsets the tax bill of the final entity.

When these transactions are done, within the span of a day multiple companies are created and merged and absolved.

There is little to no risk for the VC

	▲	JumpCrisscross 32 minutes ago \| parent \| next [-]
		> The clinic is the collateral to the bank. VC stand to loose nothing This is actually a case where using the correct terminology clarifies. VCs don’t do LBOs. Private equity firms do. When their deals go bust they lose the equity they invested. That equity is the first layer to take a loss. When that happens, the lenders—whether they be banks or private credit firms—take over the company, often converting some of their previous debt into equity. There is a lot of risk in LBOs. It’s why they have such a mixed record.
	▲	fireflash38 7 minutes ago \| parent \| prev \| next [-]
		Who are the bagholders in these scenarios?
	▲	hrimfaxi an hour ago \| parent \| prev [-]
		> It does not happen overnight. But what happens is after they take control of the clinic or company they change the sales model to boost reoccurring revenue, this then allows the clinic or target company to take loans out. Because they look good on paper. The company then pays VC back when then pays bank back. This was the missing bit for me. Thanks for taking the time to explain!

▲

axus 3 hours ago | parent | prev [-]

If hours of preparation for college testing taught me anything, it's the difference between lend and borrow.