Private equity at Bain Capital: 1984.E2.80.931990 Business career of Mitt Romney

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bain capital founded in 1984 bain & company partners mitt romney, t. coleman andrews iii, , eric kriss. in addition 3 founding partners, team included geoffrey s. rehnert , others bain & company.

romney had titles of president , managing general partner (or managing partner). later referred managing director or ceo well. sole shareholder of firm. @ beginning, firm had fewer ten employees. when new employees hired, in twenties , top-ranked graduates stanford university or harvard university, both of romney had attended.

in face of skepticism potential investors, romney , partners spent year raising $37 million in funds needed start new operation. investors included members of elite salvadoran families fled country s civil war. , other wealthy latin americans invested $9 million through offshore companies registered in panama.

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while bain capital founded bain executives, firm not affiliate or division of bain & company rather separate company. initially, 2 firms shared same offices – in office tower @ copley place in boston – , similar approach improving business operations. however, 2 firms had put in place protections avoid sharing information between 2 companies , bain & company executives had ability veto investments posed potential conflicts of interest. bain capital provided investment opportunity partners of bain & company. bain capital s original $37 million fund raised entirely private individuals in mid-1984. firm gave cut of profits bain & company, romney later persuaded bill bain give up.

the bain capital team reluctant invest capital. 1985, things going poorly enough romney considered closing operation, returning investors money them, , having partners go old positions. partners saw weak spots in many potential deals 1986, few had been done. @ first, bain capital focused on venture capital opportunities. 1 of bain s earliest , notable venture investments in staples, inc., office supply retailer. in 1986, bain provided $4.5 million 2 supermarket executives, leo kahn , thomas g. stemberg, open office supply supermarket in brighton, massachusetts. fast-growing retail chain went public in 1989; 1996, company had grown on 1,100 stores, , 2008, on 2,000 stores. bain capital reaped sevenfold return on investment, , romney sat on staples board of directors on decade. successful investment occurred in 1986 when $1 million invested in medical equipment maker calumet coach, returned $34 million. few years later, bain capital made investment in technology research outfit gartner group, ended returning 16-fold gain.

bain invested $37 million of capital in first fund in twenty companies , 1989 generating annualized return in excess of 50 percent. end of decade, bain s second fund, raised in 1987 had deployed $106 million 13 investments. firm began organizing around funds, each such fund run specific general partnership – included bain capital executives others – in turn controlled bain capital inc., management company romney had full ownership control of. ceo, romney had final approval on every deal made.

in 1987, former herman s world of sporting goods ceo jack smith made pitch romney, , bain joined several other backers smith open 9 sporting-goods mega stores. kmart bought sports authority chain $75 million.

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romney discovered few investment opportunities himself (and did, failed make money firm). instead, focused on analyzing merits of possible deals others brought forward , on recruiting investors participate in them once approved. firm gave cut of profits bain & company, romney persuaded bain give up. within bain capital, romney spread profits deals within firm keep people motivated, keeping less ten percent himself. viewed fair manager, received considerable loyalty firm s members.

romney s wary instincts still in force @ times, , data-driven , averse risk.

he wanted drop bain capital hedge fund lost money, other partners prevailed , gained billions. romney on board of directors of damon corporation, medical testing company later found guilty of defrauding government; bain capital tripled investment before selling off company, , fraud discovered new owners (romney never implicated). in cases, romney had little involvement company once acquired. beginning in 1989, firm, began venture capital source investing in start-up companies, adjusted strategy focus on leveraged buyouts , growth capital investments in more mature companies. model buy existing firms money borrowed against assets, partner existing management apply bain methodology operations (rather hostile takeovers practiced in other leverage buyout scenarios), , sell them off in few years. existing ceos offered large equity stakes in process, owing bain capital s belief in emerging agency theory ceos should bound maximizing shareholder value rather other goals. end of 1990, bain had raised $175 million of capital , financed 35 companies combined revenues of $3.5 billion.