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Give Romney a break on 'harvesting' comment

September 28, 2012: 2:40 PM ET

Candidate's 1985 statement is being misinterpreted.

FORTUNE -- We've seen Mitt Romney say a bunch of dumb things in old videos over the past few weeks. But his desire to "harvest" investments while with Bain Capital is not one of them.

The comment in question was made by Romney in 1985 and included in a 25th anniversary video for Bain & Company, the management consulting firm that spawned Bain Capital. Mother Jones uncovered the footage, and yesterday posted it online. The Obama campaign quickly pounced, as did many left-leaning bloggers. Here is the relevant part of what Romney said:

"Bain Capital is an investment partnership which was formed to invest in startup companies and ongoing companies, then to take an active hand in managing them and hopefully, five to eight years later, to harvest them at a significant profit."

Look, I get it. The term "harvest" may sound nefarious to Americans who don't live within walking distance of a farm. Maybe it conjures up images from The Matrix, where people were grown to satisfy the energy needs of machines.

But "harvesting," in the context of what Romney was discussing, usually indicates a positive outcome for all involved. Namely, that a company was worth more at the time Bain Capital sold it than at the time Bain Capital bought it.

Bain Capital was primarily a venture capital investor in 1985, backing young companies with what today today is actually known as "seed" funding. Just like with a crop, the idea was to grow the company until it matured to the point that it could be sold at a higher price (either to another company or to the public markets). Obviously it's not a perfect metaphor since crops ultimately get chewed up while companies can continue to thrive after being sold, but you get the gist. The idea was to create, not destroy.

Same goes for when Bain Capital eventually turned more of its attention toward older, more established companies. Here too the idea was to take something weak and make it stronger. Convert something of low value (a seed) into something of high value (a crop).

Yes, it is true that Bain Capital would sometimes profit from investments in companies that went broke. And, yes, it's also true that Bain Capital arguably was the primary culprit in some of those failures (by over-leveraging the companies with debt). But those aren't the types of situations that Romney was referring to in 1985, any more than they are when private equity investors discuss "harvesting" today (which they do).

"Harvesting" is for the deals that are significant successes at the end. Not ones in which firms engineer relatively small profits along the way before a bankruptcy court steps in.

To be sure, private equity is primarily about profit -- and Mitt Romney should have never pretended it was about job creation. But "harvesting" doesn't tend to mean the former at the expense of the latter. And, in many cases, it can mean both.

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About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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