> The clinic is the collateral to the bank. VC stand to loose nothing

This is actually a case where using the correct terminology clarifies.

VCs don’t do LBOs. Private equity firms do. When their deals go bust they lose the equity they invested. That equity is the first layer to take a loss. When that happens, the lenders—whether they be banks or private credit firms—take over the company, often converting some of their previous debt into equity.

There is a lot of risk in LBOs. It’s why they have such a mixed record.

> It does not happen overnight. But what happens is after they take control of the clinic or company they change the sales model to boost reoccurring revenue, this then allows the clinic or target company to take loans out. Because they look good on paper. The company then pays VC back when then pays bank back.

This was the missing bit for me. Thanks for taking the time to explain!

Who are the bagholders in these scenarios?