[winterchil]

This is a brutal generalization so take it with some salt. I also don't subscribe to the "all PE guys are evil and unnecessary" philosophy but with just this teaser description it would be easy to think I support it. Anyway, on to your answer.

Private Equity firms typically want to run their portfolio companies as profitably as possible. This means cutting down service, R&D, technology, etc as lean as possible without damaging the existing product or brand.

It also rules out lots of room for innovation as the companies chief reason for existing becomes generating enough profits to pay off the individual company's outstanding debt.

Why is there debt? Private Equity firms will buy a company, streamline its operations, increase its profits, and demonstrate to banks/investors that it is financially stable. Once they've done that they raise lots of debt against the promise to pay off that debt with the future, dramatically increased, profits. They use the debt to pay themselves a bonus for taking over the company and fixing it.

Why not wait and just pocket the company's profits over time? Well, that's how Warren Buffet does it (sort of), but by loading the company with debt they get their bonus sooner increasing the IRR for their own investors.

edit: phrasing.

[001sky]

Counter-examples, or a couple examples of the salt: skype, getty images, doubleclick, etc. sometimes, it really does makes sense to add capital and/or shield the company from the public markets. When going through change, etc. builders and flippers are co-mingled though. just like vc presumably.

[winterchil]

Absolutely. And the distinction between "growth equity" and "private equity" gets ever more blurry over time.