I raised $5 million from four investors in 1987. Today, Carlyle manages not $5 million, but $500 billion.
How old were you then when you started Carlyle?
37. I said, "Geez, if I don't do it now, I'll never do it."
Do you have any habits that you think would shock people?
I always view myself as being from a blue-collar family in Baltimore.
But even like in year 10, you weren't thinking like, "All right, I can breathe a little. This is going to work. I think I'm safe."
No. Because if you're an entrepreneur, you always think something bad's going to happen.
Every day. 99.9% of the companies started in the United States are not in business five years later. If you go back and look at anybody that built a company, they have self-confidence that is staggering. I met Jeff Bezos for the first time. He said, "Well, I'll give you 20% of the company that I'm about to build." Later, after the company was going somewhere, I said, "We should have taken that deal." That was stupid. That stock's probably worth $14 billion now.
Can I ask you about seeing people get power? Well, I was looking at this photo. There's this photo here of, I think it's you and your parents.
Yes. It's with President Carter. And, you know, I was 27 years old. I got a job as the deputy domestic policy adviser. I obviously wasn't qualified. I wasn't experienced, but in our system, if you work in a campaign and you win, you might get a job in the White House. And so my parents, who are blue-collar workers, never graduated from high school. When I got a job at 27 at the White House, you know, they couldn't believe it. And then I took them in to meet the president, which is what that picture shows. And they were, you know, in awe because they were what you would call yellow dog Democrats.
It is an old expression. It means that I am a Democrat and I would vote for a Democrat for a candidate for president or for any office even if it was a yellow dog.
So they're just hardcore Dems.
What do you do your first month when you're in office? Because getting any type of new job is a big deal, particularly one where it's like one of the most powerful things on earth. What do you do your first month? Do you remember?
Carter had a lot of promises. And what I did is I worked on compiling what his promises were. See, there wasn't no internet then. And so Carter had wanted to know what he actually promised in the course of his two-year campaign. Well, you have to go dig it out. Talks, interviews, questionnaires. What did he actually promise? And I got to sit in a lot of Carter's meetings because I knew his promises better than anybody. And so I would be able to object and say, "Mr. President, it's a good idea this person has, but it's a violation of a campaign promise." Every administration, the current administration, every administration has young people who are in their 20s or 30s who work in the campaign and they're energetic and eager and they get jobs, and some of them will turn out to be great and some will turn out to be not as great.
But how did you figure out how to make good decisions because you were so young?
I mean, I didn't have a lot of policy experience. I'd worked on Capitol Hill for about a year or so. I didn't really have that much policy experience. My boss did. And then we hired a staff of really talented people. They were all young, but they were talented in their area — energy or environment or whatever it be. And then we'd have issues and we'd come up with positions. Remember, the president has policy positions that he wants to take because of campaign promises. So we would articulate, you know, how we could fulfill those promises.
So you were there for four years. What did you feel like when it was done?
Well, when you work in the White House, people come to you and tell you how great you are. Nobody says, "Yeah, you're an idiot." They come and tell you, "You're a smart guy. You're great. And by the way, can you help me on this or that?" And they always will say, "And by the way, if you ever want to leave, call me because I'm going to hire you." But I always said, I don't want to be hired, but I'm going to be here for four years and if we win, I'll be maybe the senior domestic adviser in the next four years. After we lost the election, I started calling these people saying, "You remember me? I'm the bright young guy who said it was so great." I didn't get calls back because you're out of power. People want to go get contacted with the Reagan people. So I struggled for a while to find a law firm that would take me because nobody really wanted a junior White House aide who was a Carter person.
I left the White House at 31. So at 31, I'm trying to figure out — I want to tell my mother, look, your son is unemployable. Nobody wants a Carter White House aide. Not unlike the experience that the Biden people have had. The Biden people have found it more difficult to get reestablished than they would have preferred. And when you lose an election, you know, you're out of power. So, as Harry Truman said, if you want a friend in Washington, get a dog. Eventually, I got a job practicing law. And I realized I wasn't that great a lawyer. I didn't really like it. And so I started an investment firm about a year, a couple years later.
I think the best way to become successful is to see how other people did it. Whether you're going to copy them or just use it as inspiration, because then now you know what's possible. So starting at the age of 24, I did this relentlessly and I was very methodical about it. And I created a spreadsheet where I tracked roughly 50 people who were uber successful and I looked at the year that they were born, the year that they started their apprenticeship, and then the year that they started the first thing that made them successful, finally the year that they broke through. And I aggregated all this data along with the stories of what they did to be an apprentice and what they did to finally break through. And I put it together in a database. And HubSpot went and found this thing that I frankly even forgot about, but it did change my life. And they resurfaced it. They made it even better. And they put it into a thing that you can download for free right now. So, if you click the link in the description or click the QR code right here, you can see this database that I made when I was 24 and it changed my life. And so if you're looking to become successful or you're already successful and just want some more inspiration, check it out.
How old were you then when you started Carlyle?
I was 37 because I read that an entrepreneur will start his or her first company between the ages of 28 and 37. Now obviously there's the Mark Zuckerbergs and Bill Gates of the world that are different, but the average person will start a first company between 28 and 37. If you haven't done it by 37, I read you probably will never start a company. So if you have an entrepreneurial instinct, you better do something by the age of 37. It was what I read and I was then 37. I said, "Geez, if I don't do it now, I'll never do it."
Did you think like a lot of times when people start businesses, they're like, "How much runway do I have?"
When I started Carlyle, I was married — when I left the White House, I wasn't married. I got married a couple years before I started Carlyle.
So you had the pressure of like, I need to provide.
Well, I had some pressure, but you know, there's pressure, but the pressure of getting a company off the ground is considerable. As you know, you started your own company. You never know when you start a company if you're going to be able to pay the rent the next day or next month. And are people going to want your services? You don't know. When I started my first company, that was one that led to some success. I was lucky because I was 24 or 25 and I was single and I only spent $1,500 or $2,000 a month. And so I had saved up maybe, I don't remember, $50,000. So I'm like, I'm good. I have 36 months or something like that.
Well, remember 99.9% of the companies started in the United States are not in business five years later. 99.9%. So, it's a small percentage of companies that are there five years later and a very smaller percentage are there 10 years later. So, most companies that are started just don't work out.
What did you do the first handful of weeks after you decided to start the company?
Well, I had to recruit people and recruit people, and then I had to raise money to get it started. I raised $5 million from four investors in 1987. Today, Carlyle manages not $5 million, but $500 billion. So, it's grown to be one of the larger private equity firms in the world with the help of a lot of people. But I did that for many, many years.
Who were your first few hires?
Well, I had a couple partners. I hired a person who had been the chief financial officer of a company called MCI, which was a long-distance telephone company, and he became my co-CEO with me for some 30 years. His name is Bill Conway. And we hired another person, a senior officer from Marriott. So we hired a number of people at the beginning, four of us at the beginning, and then we grew it. The companies Carlyle controls have about a million and a half employees and Carlyle itself has got about 2,300 core.
It sounds like whenever I started my last company, the people who I initially hired, they're basically like rejects. Like it's smart, ambitious, rebellious. But it sounds like the people you hired early on were very pedigreed.
Well, they have pedigrees in the sense that they had gone to good schools. I was probably a sucker for hiring people that went to good schools, but in the end, everybody is leaving somewhere because they're not happy there and they're not thinking it's working well for them. So, everybody is really incented to try to get a better position in life. And a lot of people at the age of 20 or 30, they realize the job that they currently have may not be so great. So, they take a chance. And you know, some people work out and some people doesn't work out.
I know your job was recruiting and your job was helping fundraise. And I already know because I've listened to so many of you, you're very charming and you're very persuasive. You're very good with words.
I don't know about that, but I would say that my partners had MBAs. I didn't have an MBA. So, they really knew the investment world. So, I figured, okay, they can really assess deals better than I can. What I'll do is I'll raise the money and then I'll ultimately recruit people and then I'll be the face of the firm because I was better at that than maybe they were. And so that's what I did for 30-plus years, run around the world raising money and then recruiting people to build our new firms. What we did that was different was we had multiple funds. In private equity historically, you had a buyout fund if you're a buyout business and you had a venture fund. Every four years you raise a new one if your track record was good enough to justify it. I came up with the idea of having a buyout fund, a growth fund, a real estate fund, a debt fund, and I had multiple funds, and then I had the idea of globalizing it — have a fund in Europe, in Asia, Japan, so forth. That was novel at the time. But to do that, I had to run around the world recruiting people and raising the money. And so that took a lot of time.
Do you remember how — so you got your first $5 million fund. How long did that take to raise?
Well, it was one person who was a friend of mine who helped me raise the $5 million. And it was from four investors. And we did things what's called deal by deal. We didn't have money to do a big fund. So we'd find a deal and then go raise money for that deal. If it worked out, then we'd go raise money for another deal. And we did that for a number of years before we raised our first fund, which was $100 million, and the second fund was a billion. And so we got bigger.
How did you pay your team then if you don't have a fund? If you're doing deal by deal.
Well, it's harder because if you do it deal by deal, you have to go to people and say, "Here's a good deal. Give me some money for it." They say, "I'll get back to you. I'm not sure." So, it takes time and it's hard to do what we were trying to do at the time because we were buying publicly traded stocks and you can't tell people, "Here's the opportunity," because they could trade on it if they didn't give you the money and they legally, I guess, could trade on it that they shouldn't have. So, it took a while to get done. But that's true of everybody. Anybody that's built a successful company is always going to have a hard time at the beginning. And you know, we had a hard time at the beginning, but Blackstone and Apollo and KKR, they all had similar stories of having no money at the beginning. And then they started Blackstone, which is the biggest of the private equity firms these days. Steve Schwarzman wrote in his autobiography that, you know, they got turned down by 97% of the people they went to to raise their first fund.
Yeah. And the first one was huge, wasn't it? Like it was made $800 million, I think.
But what I'm curious about, I don't think that you talk too much about your entrepreneurial side and I'm always very curious about that. Do you remember like the scrappy stories of what your first office looked like?
When I started the firm, we didn't have any money. We had no credibility. So there was a new office building that had been built in Washington. It looked like a building that was a classic building for a wealthy kind of set of tenants. And they had a little space left because they had filmed a movie called Broadcast News with Jack Nicholson in that space. So the space was now available. I said I would take the space, it was 5,000 square feet, and the leasing agent said, "Look, you can have another 5,000 if you want. You have an option for 5,000." I said no, I didn't take it. I said I don't want it. She said it's free. You just sign a thing here. You get the option to have 5,000 square feet more. I said I don't want it because I don't want to be tempted to ever grow that big a firm.
Why didn't you want to grow that big?
Well, at the time I didn't know much about business compared to what I knew about government or what I knew about the practice of law, and I was afraid if I took a bigger space that we would try to expand too rapidly. So that's probably why we didn't do it. Then later we had to expand and now we're the biggest tenant in the building.
About one night a week I'll be laying in bed with my wife, you know, doing pillow talk and I'm like, you know, one day if we nail this, this, and this, in the next 10 years maybe we can be this or maybe in 50 years we could be this. And like you have these like, you know, vision sessions. Were you doing that with your spouse?
Every day was a challenge because we were trying to start a firm. Remember, private equity was not as big as it was today. In fact, the phrase private equity wasn't even invented yet. We were in Washington, D.C. Washington, D.C. was not New York. People didn't take you seriously. And people asked me, "Why did you do it in Washington?" Well, Senator Everett Dirksen, who used to be a Senate minority leader, said famously, "When you're getting kicked out of town, get out in front and pretend you're leading a parade." What does that mean? It means take advantage of the situation you're in. So I said, "We're in Washington. We understand companies heavily affected by the federal government better than the guys in New York." Maybe it was true, maybe it wasn't, but it sounded good. And kind of some people gave us money.
You're the second person in the past couple weeks. So over here, we've had Ray Dalio in recently. And I asked him the same question. I was like, "When you were first getting Bridgewater going, what were some crazy ambitions? Did you say like, 'Oh, it would be awesome if we made $100 million or a billion dollars or had 10,000 employees or whatever'?" And he was like, "I just wanted to make 100 grand a year so I could pay for my family. That was my goal."
In Ray's case, I think he started the business out of his apartment.
Yeah. And he had asked his dad for money one time because he went broke. He had to borrow money from his father.
Yeah. And so it's funny hearing you say this because you've built such an amazing company that I can't believe that there was no aspirations early on just for the sake of motivation.
You know, if you have the grandiose expectations or plans in the beginning, you might be fooling yourself. I don't think Bill Gates when he started thought he was going to build what he built or Mark Zuckerberg or all these others. For example, Mark Zuckerberg was at Harvard. My now son-in-law was one of his classmates and I heard about the opportunity this guy was building his company and they asked me to invest and I said, "I'm not going to invest. That's a dating company." Because the original idea was simply to help people get dates at Harvard. You have pictures of people, their faces, and you could do it through social media. And then they thought maybe that expanded to Yale or Princeton. That was it. The idea of doing non-students really hadn't even surfaced then. I don't think Mark Zuckerberg actually thought he would ever build what he built.
Yeah. I think I remember some awesome story of Jeff Bezos at a pitch. He goes, "Look, if we really nail this, I think we can make $100 million a year."
Look, I saw Jeff at the beginning because he had a bibliography of books in print to be able to sell books over the internet. One of our companies had a bibliography of books in print. He came to rent it from us. And we said, "We don't rent it." He said, "Well, I'll give you 20% of the company that I'm about to build." And our guy said, "We don't want a piece of an illiquid company, a startup. That's not what we want. We want cash." Ultimately, we agreed to I think $100,000 a year for five years. We rented him the bibliography.
Wait, you owned a company that was a book publisher and it had a book that had a list of every book ever written and the offer was 25%?
20 to 25%. Later, after the company was going somewhere, I said we should have taken that deal. I flew out. I met Jeff Bezos for the first time and he had one office and he was doing the books himself and he would take them to the post office every night. It was very small and I said, "You know, you're going to compete against Barnes & Noble." He says, "Yeah, but I understand how to do this better than they do." And so I said, "This guy's not going to really make it." I said, "Look, we'll take some stock now. We'd like some stock. 20% is okay." He said, "Well, David, that was a couple years ago. Now I don't need you quite as much, but I'll give you some stock." We got some stock, but then we sold it at the IPO. That was stupid. That stock's probably worth $14 billion now.
Did he have any attributes back then that you saw this guy is going to be the guy?
He's very smart and self-confident. And he said he had a lot of good computer skills and maybe he did, I couldn't judge that, but he was very driven, very smart, hardworking. Like a lot of entrepreneurs, people that build companies are not shrinking violets. You know, if you go back and look at anybody that built a company, they have self-confidence that is staggering because if you're a shrinking violet, you're not going to build a company. Bill Gates as a young man, and Jeff Bezos, or Mark Zuckerberg, or Steve Jobs, the enormous amount of self-confidence, and that's what it takes to really build a company.
I didn't have as much as they did because I didn't think I was as smart as they were, but I was surrounded by people that had more. I recruited people that knew more than I did.
And you got really good at not just recruiting talented people, but you got really good at recruiting big shots. Like you had a bunch of big shots who were — I don't know the right terminology there — like advisers.
Well, what happened was when we were starting the company or right after we started it — they started in '87. Ronald Reagan's presidency was over in '88. And a former law partner of mine said that a man who had been the secretary of defense was going to go on a lot of corporate boards, but in those days if you were not a lawyer, you couldn't join a law firm. So he was looking for a place to be a base. And he, my former law partner, knew about what I was doing. And since we weren't a law firm, he said, "Why don't you interview Frank Carlucci, the former secretary of defense, or about to be former secretary of defense, and he can join your firm? He's going to be on a lot of corporate boards so maybe he can open some doors for you." So we interviewed Frank Carlucci. He joined us and then he could open doors that I couldn't open. He was a former secretary of defense. Four years later Jim Baker was leaving as secretary of state. But while this is the ultimate great man of the world — Secretary of State, Secretary of Treasury, White House chief of staff — and I was able to recruit him.
How many other options did they have? Like why would they trust a startup?
I mean, they always had other things that we weren't doing. In Frank Carlucci's case, he was joining like six or seven corporate boards. That was his main activity. In Jim Baker's case, he went back to his family's law firm. He was a partner there, but he's also a partner in our firm. And then after Baker, we had Dick Darman, who had been one of his proteges who had been the head of OMB. And then later, George Herbert Walker Bush, former president of the United States, became an adviser to us. And then John Major, former prime minister, became an adviser to us as well. So, we did open doors with these people because if your last name is Rubenstein and you go to the Middle East to raise money, it might not be as compelling as if you go with Jim Baker.
Do you remember what the pitch looks like or sounds like when you're swinging above your weight?
I was saying, look, we're a firm in Washington. We understand companies heavily affected by the federal government. We're buying an aerospace defense company. We have a former secretary of defense. And, you know, in the end, you have to build your track record. So if you did one deal and it exited well, then you can go and use that to say we're going to do another deal similarly. So it worked out, but we made some mistakes and everybody makes mistakes, and you know, but it worked out.
Yeah, that's crazy. But it seems like you guys had like a pretty good trajectory. Do you remember any times where you're like, this is not going to work?
One time we had a limited amount of cash and then we were trying to buy a company and it was in bankruptcy court. We were trying to buy it out of bankruptcy and we basically spent all our money trying to buy it and then we lost in bankruptcy court. So, we'd spent all our money. We didn't get the company. We had no more cash. So, we said, "Hey, what are we going to do to meet the payroll?" But in the end, we actually got the company. And in the end, it turned out to be a very successful deal. But, you know, I remember waking up in the middle of the night thinking, "Hey, how am I going to pay the rent?"
What year or how many years into the company did you feel like you personally were like, "All right, I'm financially stable"?
Maybe yesterday. It takes a while. I mean, when we were building the company, we ultimately sold a piece of it to CalPERS, I think about 5% to the California retirement system, and they valued the company at something being worth like $2 billion. The company was worth $2 billion or $2.5 billion. Nobody thought that a private equity firm in those days had franchise value and could be sold, but we sold 5% to CalPERS. That was probably 2009 or something like that. And then a few years later we sold 7.5% to Mubadala, which was an Abu Dhabi investment arm, and that valued the company at being worth $20 billion. And then we later took the company public.
But even like in year 10 or so you weren't thinking like, all right, I can breathe a little. This is going to work. I don't know how well it's going to work but it's actually going to work. And personally I think I'm safe.
No. Because if you're an entrepreneur you always think something bad's going to happen. And so I'm always worried that something bad's going to happen. Tomorrow somebody will do something they shouldn't have done or a deal won't work out. So I never felt comfortable. You know, I tend to be a workaholic a bit. So I'm always working on things and I'm always thinking what can go wrong.
Do you still feel that way?
Look, I'm always thinking bad things can happen. Maybe that's what entrepreneurs do because you have to have some certain self-confidence, but you always have to assume something bad can happen. You have to protect against it.
But it seems like you've had good partners. I'm highly neurotic. My business partner who runs Hampton is not neurotic at all and he's very calm and steady and it's like the greatest pair ever because he's the only one who I will be neurotic with.
Well, I have two people that I really built the company with and one of them is now 80 years old and has all dark hair with one gray hair. So, he may not be as neurotic as I am. And then Bill Conway has gray hair, but he doesn't seem to worry about some of the things as much as I do. Maybe because he's more self-confident about his abilities to be an investor. But look, you're always worried something bad's going to happen. I'm worried every day. I'm now the principal owner of the Baltimore Orioles. I'm worried every day that something bad could happen.
What are you worried about with the Orioles?
I want to make the playoffs. And you know, we're now one game out of the playoff — one game away from being able to get into the playoffs, but one game behind the Cleveland Guardians, and then there are other teams that could catch up to us. So, I'm always worried that I didn't do a good enough job in helping the team. I get worried about looking stupid on the internet and like the comments — I act like they don't bother me. They do.
