Tiger Sisters

Private Equity 101: Everything You Need to Know to Be Dangerous in 20 Minutes

4 snips
Jul 28, 2025
Explore the impact of private equity on beloved brands and local identities. Discover why firms prefer buying entire companies over small investments. Learn about leveraged buyouts and their potential risks, illustrated by the Toys R Us story. Uncover the negative reputation private equity faces, including layoffs and media portrayals. Finally, delve into the complexities and ethical dilemmas within the industry, revealing how management styles can drastically shape outcomes for employees and consumers.
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INSIGHT

What Is Private Equity?

  • Private equity buys majority stakes in private companies with a goal to increase their value and sell for profit.
  • It targets larger, underperforming firms unlike venture capital, which invests in earlier, riskier startups.
INSIGHT

PE Money-Making Mechanics

  • Private equity firms make money primarily through a 2% management fee and 20% carried interest on profits.
  • "2 & 20" fees align managers' incentives with fund performance.
ANECDOTE

Toys "R" Us LBO Failure

  • Toys "R" Us took a $6.6B leveraged buyout with $5.2B debt in 2005 but failed to turn around the company.
  • They spent so much on debt payments that they couldn't compete with Amazon, leading to bankruptcy in 2017.
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