Something Bad Can Happen Every Day

David Rubenstein is the co-founder and co-chairman of The Carlyle Group, the private equity firm he started in Washington in 1987 with $5 million from four investors and which now manages about $500 billion. He grew up in Baltimore as the only child of a postal clerk and a mother who never finished high school, and at 27 became deputy domestic policy adviser to President Jimmy Carter. Today he is the principal owner of the Baltimore Orioles, an early signer of the Giving Pledge, a television interviewer of business and political leaders, and a buyer of historic documents including a copy of the Magna Carta that he placed on permanent display at the National Archives. These signals are from David Rubenstein's interview with Sam Parr on My First Million.

1. The Age-37 Deadline. Rubenstein started Carlyle at 37 because he had read that most people who start a company do it between 28 and 37, and that anyone who hasn't by 37 probably never will. "Geez, if I don't do it now, I'll never do it," he told himself. He had been a mediocre lawyer for a few years after leaving the White House and didn't like the work. The deadline turned a vague instinct into a decision.
2. Permanent Paranoia. Rubenstein says 99.9% of companies started in the United States are gone 5 years later, and he still assumes something bad is about to happen. Asked when he finally felt financially safe, he answered, "Maybe yesterday." He worries daily that someone at Carlyle will do something they shouldn't, that a deal will fail, or that the Orioles, then one game out of a playoff spot, will miss. He calls this worry part of the job: you need self-confidence, and you also have to protect against what can go wrong.
3. The $14 Billion Miss. Jeff Bezos needed a bibliography of books in print to sell books online, and a Carlyle company owned one. Bezos offered 20% to 25% of the company he was about to build to use it; Carlyle's executive wanted cash and settled for about $100,000 a year for 5 years. When Rubenstein later flew out and asked for the 20%, Bezos was packing books and driving them to the post office himself and no longer needed Carlyle as much. Carlyle got some stock, sold it at the IPO, and Rubenstein estimates it would be worth about $14 billion now. "That was stupid," he says.
4. Staggering Self-Confidence. Everyone Rubenstein has watched build something big, from Bill Gates and Steve Jobs to Bezos and Mark Zuckerberg, had self-confidence "that is staggering." He says he had less of it because he didn't think he was as smart as they were. His fix was to recruit people who knew more than he did. His partners had MBAs and assessed deals; Rubenstein, who had none, spent 30-plus years raising money, recruiting and being the face of the firm.
5. Partners Who Balance You. Rubenstein's first hires were Bill Conway, the former CFO of MCI, who served as his co-CEO for some 30 years, and a senior executive from Marriott. Conway worries less than Rubenstein does, which Rubenstein attributes to Conway's confidence in his own skill as an investor. The firm that started with 4 people now has about 2,300 core staff, and its portfolio companies employ about 1.5 million people.
6. Lead the Parade. Carlyle had no money and no credibility, and Washington wasn't New York. Rubenstein borrowed a line from Senator Everett Dirksen: when you're being run out of town, get out in front and pretend you're leading a parade. He pitched Carlyle as the firm that understood companies heavily affected by the federal government. "Maybe it was true, maybe it wasn't, but it sounded good," he says, and some people gave them money.
7. Borrowed Credibility. In 1988 a former law partner suggested Rubenstein interview Frank Carlucci, the departing Secretary of Defense, who needed a base since he couldn't join a law firm. Carlucci opened doors Rubenstein couldn't, and he was followed by James Baker, Richard Darman, President George H.W. Bush and Prime Minister John Major as partners and advisers. Rubenstein is blunt about why: "If your last name is Rubenstein and you go to the Middle East to raise money," it is less compelling than arriving with Jim Baker. The pitch still had to be backed by deals, since each good exit is what let the firm raise the next round.
8. Deliberately Small at First. Carlyle took a 5,000-square-foot office, and Rubenstein turned down a free option on another 5,000 because he didn't want to be tempted to expand too fast. He financed deals one at a time for years, asking investors to fund each deal before raising a first fund of $100 million and then a $1 billion fund. Once one bankruptcy-court bid consumed all of Carlyle's cash and lost, and the partners wondered how they would make payroll. Carlyle eventually got that company anyway, and it became a very successful deal. Today the firm is the biggest tenant in that building.
9. Multiple Funds, Many Countries. Private equity firms traditionally ran one buyout fund and raised a new one every 4 years if the track record held up. Rubenstein's idea was to run a buyout fund, a growth fund, a real estate fund and a debt fund side by side, then add funds in Europe, Asia and Japan. It was novel at the time and required him to spend decades traveling the world raising money and recruiting teams, often more than 200 days a year.
10. Franchise Value. Nobody thought a private equity firm had value that could be sold until Carlyle sold about 5% to CalPERS, the California pension system, at a valuation of roughly $2 billion to $2.5 billion. A few years later Abu Dhabi's Mubadala bought 7.5% at a valuation near $20 billion, and Carlyle then went public. Those sales showed that the firm itself, separate from its funds, was an asset with a price.
11. You Want a Friend, Get a Dog. In the Carter White House, Rubenstein got into meetings because he had compiled every campaign promise from 2 years of speeches, interviews and questionnaires, and could tell the President when a proposal broke one. Everyone told him how smart he was and promised to hire him whenever he wanted. After Carter lost, those people didn't return his calls, and at 31 he struggled to find a law firm that would take a Carter aide. He quotes Harry Truman: "You want a friend in Washington, get a dog."
12. Luck and the Devalued Dollar. Rubenstein says success can't be predicted. He hired Glenn Youngkin out of Harvard Business School, watched him spend 25 years at Carlyle, and never expected him to win the Virginia governorship. He passed on Facebook because it looked like a Harvard dating site, and says Microsoft owed much to IBM's choice not to own the PC operating system. He is also worried about the $40 trillion federal debt, which he says can only be repaid in devalued dollars, so "the dollar will go down in value almost certainly."

Watch the full video at https://www.youtube.com/watch?v=zEB6IP-FQsY.