Vulture capital is funds invested to exploit and profit from unsuccessful enterprises and individuals or organizations that lack the resources to achieve success.
The term is derogatory wordplay referencing venture capitalism (VC), which is not by definition exploitative. The vulture analogy likens the behavior of vulture capitalists to the iconic carrion-eating raptors that prey on the weak.
Here’s one example of how vulture capitalism works:
Vulture capitalists often purchase a controlling interest in a distressed company through what is known as a leveraged buyout (LBO), with as much as 90 percent financing. The purchase may be a hostile takeover, which means that the business’ owners have not consented. Another approach is buying off corporate management with large bonuses. The purchaser uses the target company’s own assets as collateral for the loan used to purchase it and typically charges the company a large management fee in addition. In the attempt to cover the loan interest and management fee, the company must cut its workforce and benefits. Usually, the vulture capitalist then sells the company at a profit.
Coinage of the term vulture capital is often attributed to either Mitt Romney or his advisor because of Romney’s claim to know the difference between venture capitalism and vulture capitalism. However, although Romney himself could arguably be described as a vulture capitalist for his activities on behalf of Bain Capital (a private equity firm), the term is much older than 2010 when he made that claim – most likely originating post-dot.com bubble to refer to venture capitalists who began buying up failing dot-com enterprises at rock-bottom prices.
The activist Malcolm X may have inspired the term, in a Young Socialist interview published shortly before his assassination in 1965:
“Capitalism used to be like an eagle, but now it’s more like a vulture. It used to be strong enough to go and suck anybody’s blood whether they were strong or not. But now it has become more cowardly, like the vulture, and it can only suck the blood of the helpless.”