Dismal Failure turns out to become Brilliant Success

Last week David Rubenstein, co-founder and managing director of The Carlyle Group, gave a talk at Stanford's Business School on the invention of the private equity business. In a fast paced, staccato style, he hammered the audience with his personal history, private equity's necessity of invention, reasons behind its dramatic growth, lucrative current deals going down, its potential near term bust, and long term post-bust future.

If you blinked, you probably missed 2-3 slides. It was that fast.

Ironically, the mere existence of a private equity market says more about the qualities of the public equity market than anything else - read more.

David recounted his (mis)adventure as a presidential adviser to a mediocre president, and that his jump into the private equity market, then known as "bootstrap finance", was more of way a necessity like than of a fledgling being forced to fly - this or else!

An ironic beginning to a brilliant entry at the start of the rise of the private equity industry. He noticed there were none in Washington DC, and used his influence wisely to start what would become an extremely prosperous one.

The way you hear him describe the past, present and future of the industry, it sounds more like an ode to the excesses and vulnerabilities of being a publicly traded firm. What makes this hilarious is that the same investor pushing for short term gains at the cost of long term ones for the public one, is being sold on the long term gains in the privately managed one! Its incredibly hypocritical any way you slice it. As if the opportunity for private equity largely comes out of the conundrum forced on being publicly traded by the same investors who invest on the leveraged side.

He provided a "$200K personal check" challenge to the students to find him a deal he is not currently doing, that if he does finally do it, he'll sign-off on. Which may sound great to the students, but less so to those of us who earn 3 percent finders fees for our trouble of selling a new deal to an investor (his smallest deal is typically in the billions). [My wife, who always loves challenges and is on the tech side so not put off by the lack of 3 percent, thought up a massive deal the next day - ran the numbers on it and it does work out sweet!].

With deal size growing beyond $30B, and the potential for $100B+ deals on the horizon, there are a lot of public companies that make tantalizing prospects - among them he mentioned were Microsoft and Cisco.

I may be in the wrong side of the business given 30% returns in private equity - start-up's are a more chancy thing. But then, I don't have to explain losing billions of someone else's money - its hard enough when seed round start-ups don't always come off.