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The heart of private equity’s political problem

By
Dan Primack
Dan Primack
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By
Dan Primack
Dan Primack
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May 30, 2013, 4:14 PM ET
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FORTUNE — Politico today published an in-depth piece on how several private equity executives are running for elective office in 2013 and 2014, and what lessons were learned from Mitt Romney’s recent presidential campaign.

In short, the takeaway seems to be that Romney blew it. He talked too much about job creation, even though private equity is about investment profits rather than employment. He didn’t fight back hard enough when his record was challenged, or do enough to highlight the returns that he helped generate for pensioners and college endowments. And he seemed wholly unprepared for attacks on his wealth, or on why Bain Capital registered certain investment vehicles in the Cayman Islands.

The new crop of PE candidates, Politico reports, won’t make those mistakes. They’ll proactively defend their records, and argue that their funds generated millions (or billions) of dollars for retirement systems that represent ordinary Americans.

But check out the final quote of Politico’s story. It’s from Matt McDonald, a partner with consulting firm  Hamilton Place Strategies (which had advised Romney):

“The most resonant stuff from the Romney campaign were things about Staples or things about Sports Authority – these iconic companies he helped found and build. On the Obama campaign side, they were trying to define it around steel mills that were closed.”

The problem here is that both Staples and Sports Authority were essentially venture capital deals, not private equity deals. In other words, fledgling companies that Bain Capital helped grow with early-stage capital — the sort of work Bain Capital was known for before focusing more and more on acquiring mature businesses (i.e., private equity).

It was those latter deals, particularly ones involving large amounts of bank debt and occasional layoffs, where Romney ran into deep political troubles. And they are the same types of deals — at least broadly speaking — that the new PE candidates were known for.

READ MORE: Gabriel Gomez’s private equity deal

Yes, there are distinctions. Illinois gubernatorial candidate Bruce Rauner, for example, was known for creating brand new companies by purchasing lots of smaller businesses and rolling them up. Massachusetts Senate candidate Gabriel Gomez was involved more in portfolio management and business development than in deal-making while with Advent International. Minnesota gubernatorial candidate Scott Honour’s firm, Gores Group, focuses almost exclusively on acquiring struggling technology companies.

But, in general, all three made their fortunes off of leveraged buyouts. Not from helping to create new businesses out of whole cloth. These candidates had better hope they’re right about correcting Romney’s mistakes, because none of them really has a Staples or Sports Authority to hang their hat on…

Sign up for Dan’s daily email newsletter on deals and deal-makers: GetTermSheet.com

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