Henry Kravis: ‘We thrive on innovation’

    Blackstone’s Steven Schwarzman may have bagged more plaques and headlines over the past decade, but there’s really no question who private equity’s big daddy really is: KKR’s Henry Kravis.

    After launching KKR together with Jerome Kohlberg and George Roberts back in 1976, Kravis and his high-flying deals became a symbol of the go-go 80s, simultaneously helping put the term “LBO” in the mainstream while getting parodied by Tom Wolfe in Bonfire of the Vanities and played by Jonathan Pryce in Barbarians at the Gate.

    Fast-forward 40 years, Kravis has become a lot more subtle, though no less relevant. He recently spoke to Bloomberg for the 40th anniversary of KKR and was kind enough to talk about a lot of things, from how they launched the firm with just $120,000 back in the day to how he sees the PE market 40 years on.

    You can read the whole thing here, but here are some snippets for your reading pleasure:

    On what has changed in the PE market the past 40 years: There’s money everywhere today. There’s almost no institution in the world—whether it’s a sovereign fund, a foundation, an insurance company, banks, pensions funds—that doesn’t do something in the private equity sector. Information today is better than ever before. Markets are pretty darn good. There’s so much more transparency. Which also means our business has much more competition. I sort of liked it when it was just us.

    On innovation: We thrive on innovation. George and I really try to stay on the cutting edge. I love it. I learn a lot from meeting with startups. There’s a terrific company in San Francisco called AppDirect, started by Nicolas Desmarais and a partner. They focus on the enterprise area with apps, and it’s growing like crazy right now. I’m amazed at the number of entrepreneurs I meet with who are starting these companies. I ask them, “How do you hire? What’s your strategy?”

    I compare their responses to the dot-com period around 2000. Back then I’d ask, “What’s your strategy?” and people would tell me, “Go public.” I’d say, “That’s not a strategy—that’s a way to raise money.” “It’s all eyeballs,” they’d say. “OK, eyeballs,” I’d say. “You’re looking at your screen: How are you going to turn those eyeballs into money?” And of course all of those people went away. The arrogance during that time was staggering. I can’t tell you how many people told George and me, “You don’t get it, we’re probably going to put you out of business.”

    On startups: These are real businesses that are going to be around for a long time. I don’t know if the valuations are too high or too low, but the companies will stay, and they will grow. There will be shakeouts yet— you can’t have four competitors in the same category that are valued more or less the same, because only one or maybe two are going to survive. But what these companies are doing right now and how they’re thinking about disruption is phenomenal.

    Photo: Cmichel67