March 3, 2017 Leave a comment
Everybody loves a good story about the American Dream, and this one’s pretty big. In a recent interview with Institutional Investor, American financier Henry Kravis gave the inside scoop on how he built one of the biggest private equity firms in the world.
It all started in 1976, when Henry Kravis and his cousin, George Roberts, decided to start their own investment company. Both men were 32 years old at the time. With limited financial resources, they each invested $10,000 into the company. Their partner, Jerome Kohlberg, was about 20 years older and was able to put $100,000 into the company.
Their strategy was to build a company with a unique workplace culture. Both Kravis and Roberts had worked for global investment bank Bear Stearns in the past, which Kravis described as being an “eat what you kill” environment. Kravis and his partners decided very early on that they didn’t want that type of culture, so they set out to design a company that was centered on active involvement and collaboration.
“We set a firm up that everyone would participate in everything we did, and that way we got everybody to work together. And today, 40 years later, that’s the same kind of culture that we have,” Kravis stated.
Being the optimists that they are, Kravis and his partners set an extremely high goal for themselves: raise $25 million. But they soon figured out that they couldn’t raise $25 million on terms that were acceptable to them. So they decided to regroup and set the bar a little lower: raise $500,000 to cover overhead costs.
“And so we said, ‘okay. Let’s go out to have a group of individuals that will put up $50,000 each for a commitment for five years, and if they put that kind of money up, we’ll show them every deal we do. They can come in or not come into the deal, but if they come in, we want 20% of the profits.’”
And that’s how KKR was born. Kravis says that to this day, neither he, Roberts, or Kohlberg have needed to put another penny into the company. With just $120,000, the three of them built the second largest private equity firm in the world, managing a total of more than $90 billion in assets.