Private Equity 101: What It Is, Why It's Everywhere, and How Founders Can FIGHT Back and Protect Each Other
Toys “R” Us collapses under $5 billion in debt.
Nursing homes file for bankruptcy after PE owner plays “rinse and repeat.”
Veterinary bills soar 60% as private equity consolidates clinics across the country.
Vice Media declares bankruptcy, just years after a $5.7 billion valuation.
Trump opens the door to private equity in 401(k) retirement plans.
You’ve seen the headlines.
So…
What is private equity, really?
How does it work?
Why is it suddenly everywhere—from Main Street to your retirement account?
And most importantly, what can founders do to fight back?
Let’s dig in.
What Is Private Equity?
Private equity (PE) is a business model built on acquiring companies that aren’t publicly traded. A group of investors, called limited partners (LPs), puts up the money. A fund manager, called the general partner (GP), decides what companies to buy, how to grow them, and when to sell.
In theory, the model is simple:
Raise a fund from institutional, high-net-worth investors, and pension funds.
Use that capital (plus a lot of borrowed money) to buy companies
Make improvements (cut costs, install new leadership, drive growth)
Sell the company for more than you paid
But like any tool, what matters is how it’s used and who it serves.
How Does the Model Actually Work?
Most PE deals are structured as leveraged buyouts (LBOs). That means the firm uses a mix of investor cash and bank debt to buy a company then shifts the debt onto the company’s balance sheet.
Here’s the playbook:
Borrow money to acquire a company
Make the company responsible for the debt
Cut costs or restructure to boost short-term profitability
Sell the business a few years later
Collect profits and repeat
Sometimes that playbook works. Often, it doesn’t.
Real Talk: The Toys “R” Us Collapse
In 2005, Bain Capital, KKR, and Vornado bought Toys “R” Us for $6.6 billion. Only $1.6 billion came from the firms. The remaining $5 billion was debt.
That debt landed on the company. Toys “R” Us had to pay close to $500 million per year in interest. Money that could have gone toward updating stores, building e-commerce, or competing with Amazon.
By 2017, the company collapsed. Over 30,000 employees lost their jobs.
Meanwhile, the PE firms made off with more than $400 million in fees, interest, and dividends.
This isn’t just a failed deal. It’s a lesson in how financial engineering can gut a company’s future to deliver a short-term win for investors.
🎧 Want the full breakdown? Listen to this episode of Ethical Exits: Rigged by Design: How Private Equity Killed Toys “R” Us
Why Private Equity often fails us
Let’s not sugarcoat it. There are real reasons why PE draws criticism.
Debt-loading: Companies are often bought with borrowed money they didn’t ask for and left struggling to survive under the weight.
Short-termism: Most PE firms operate on a 3–5 year timeline, pushing decisions that prioritize exit over endurance.
Value extraction: From dividends to “monitoring” fees, some PE firms pull money out before value is ever added.
Opaque impact: These are private deals. No shareholder pressure. No public accountability. Often no transparency at all.
Why It’s Suddenly Everywhere
Private equity firms now manage more than $11 trillion in assets globally. They own healthcare networks, childcare centers, coffee shops, media companies, fitness studios, funeral homes, and everything in between.
And it’s still expanding.
In August 2025, Trump signed an executive order allowing private equity firms to manage 401(k) retirement accounts. $12 Trillion up for grabs. Your employees’ retirement savings could soon be tied to the same financial firms that bankrupted Toys “R” Us.
That’s not theoretical. That’s happening now.
And none of this happens by accident.
PE firms have built powerful lobbying machines and deep political networks. In Bad Company: Private Equity and the Death of the American Dream, journalist Megan Greenwell shares that 88% of members of Congress receive campaign contributions from private equity firms. It’s not just policy influence. It’s financial capture on a bipartisan scale.
“Once you understand how well-funded, well-connected, and lightly regulated private equity is — you start to see it everywhere,” Greenwell writes.
But It Doesn’t Have to Be This Way
Private equity is a structure. Not a villain. Not a savior.
Like any structure, it can be used to serve different ends.
There are better ways:
Firms with 10+ year horizons that invest with patience
Employee ownership models that protect jobs and share upside
Mission-aligned capital that supports legacy, not just liquidity
Founders who stay in control of values, even when they sell
We’ve seen it. We’ve helped build it. It’s not easy—but it’s real.
How Founders Can Fight Back
If you're a founder or owner, you’re not powerless. You’re at the center of the story.
You can fight back by being informed, intentional, and in solidarity with others doing the same.
Here’s how:
1. Think beyond exit.
Don’t just build to sell. Build to last. Design your company for value that endures.
2. Avoid crushing debt.
If you’re bringing on capital, make sure the structure supports growth not survival.
3. Protect your people.
Write them into the upside. Use equity, profit-sharing, or even ownership transitions to reward the team that built your business.
4. Demand transparency from buyers.
Ask where their capital comes from. Ask how they’ve treated other founders. Ask how they measure success.
5. Share what you learn.
Talk about your process. Share your mistakes. Speak openly with other founders so we can build a new norm.
The Movement: Protect Each Other
We fight back by staying informed.
We fight back by asking harder questions.
We fight back by refusing predatory deals.
We fight back by building new tables—and showing up at them.
Right now, only 5% of private market transactions are mission-driven or values-aligned.
Most founders never step into the buyer’s seat. Most B Corps never scale past $5 million in revenue.
We hit ceilings—financial, structural, cultural—and the result is fewer options, fewer champions, fewer outcomes we’re proud of.
That doesn’t have to be the end of the story.
We can also become buyers.
We can build collectives.
We can design resilient ownership models that don’t just extract, but regenerate.
We can use acquisitions to create more stability, shared prosperity, and real wealth for the employees and communities who built our businesses in the first place.
If you're interested in building an ecosystem of trusted, values-aligned partners on both sides of the table, reach out.
We’re launching something soon. And we’d love for you to be in on the ground floor.
💥 Want to explore what an ethical exit or values-aligned acquisition could look like for your company?
Let’s talk. Or tune in to Ethical Exits for stories from the front lines of founder-friendly M&A.
Sources
Toys “R” Us collapses under $5 billion in debt
ReutersNursing homes file for bankruptcy after PE owner plays “rinse and repeat”
PE Stakeholder
Iowa Capital DispatchVeterinary bills soar 60% as private equity consolidates clinics across the country
Financial Times
StatelineVice Media declares bankruptcy, just years after a $5.7 billion valuation
FortuneTrump opens the door to private equity in 401(k) retirement plans
AP News
BenefitsPRO
Forbes88% of Congress receives campaign contributions from private equity
Berkeleyside – Interview with Megan Greenwell
