A former lawyer, Rubenstein became deputy domestic policy assistant to the US president before he founded the Carlyle Group. The group is now one of the largest private equity firms in the world. Rubenstein spoke to DATAQUEST about Carlyle’s investment strategy in India. Excerpts:

How big is the Carlyle group? What does it focus on?
Carlyle is probably the biggest private equity firm in the world. Our current corpus is a little under $10 billion and we expect it to expand to $14 billion by the year-end. With about 325 people, we are spread over the US, the Europe and more recently Asia. We are very active in buyouts, and venture and technical investing. In buyouts we concentrate our focus and money in aerospace and defense. In technical investing, we are on the look out for investment opportunities in telecom software, IT and telecom infrastructure companies.

What are your plans for India?
We are looking at investing about $750 million in Asian technology companies over the next three years. India and China are the two key countries that will see a lot of our investments. Of the total amount, we intend to invest about $250 million in Indian companies. We think that this is the largest commitment any technology investment firm has made for India. We have already made some of those investments in India and we expect to be a very dominant player in the technology investment space.

What companies have you identified, for investment?
It has been around five months since we opened our Bangalore office. We have already made, in six companies, about $20 million investment. Four of the companies are placement.com—an IT job portal and an existing offline business moving online, IT nation.com—a B2B IT products exchange, and Ritechoice Technology—an online software company for the broking industry. Manmar Technology and Convergence software are the other two companies.

Do you also include dot-coms in your technology firms definition?
We don’t know what a dot-com is and we don’t have much to do with this phenomenon. That was a fad. The dot-com phenomena will be viewed by history as an aberration and does not form a significant part of out investment. We are more interested in companies developing technologies and products that work not only in the domestic market but also across the globe.

So are you dismissing the Internet economy—and its dot-com boom?
Of course not. We do believe that the online economy will continue to accelerate throughout the Asia-Pacific region in the next three-five years. Independent research organizations point out to a 200-million Internet user base in the next couple of years. However, as of date no one has worked out a sustainable business model in the pure Internet economy. With the dot-com phenomenon, people have been investing in technology as a business. We feel that the real opportunity lies with infrastructure companies—telecom and networking, and support companies—payment, gateway, services, security and encryption. This is the core of our investment strategy in the Asian region. We are looking at companies with solid market positions in focussed areas and are looking at technology to either globalize them or to give some competitive advantage in the market.

Some investors such as IdeaLabs and IncuVest incubate and invest in an idea up to a point, and then bring in professional managers. What is your approach?
Our entry point will be around the incubation level, and we would like to remain strategic investors—not get into day-to-day operations of our portfolio companies. We work with companies whose products or services have some level of commercial standing, and help them to scale. We believe more on creating economic networks rather than incubating ideas into companies. Our key strength lies is our ability to match-make. We hold meetings to see how we can introduce companies to one another and increase the market opportunities for our portfolios. This is important to companies in India.

Will you consider models like CMGI’s (a US-listed company which uses public money for investment), and list your company on stock exchanges?
That’s one model of how companies can raise money for their investment needs. No doubt the listing model has some strength but there are also a few inherent drawbacks. For example, when Internet stocks were not seen as attractive, the stock value of CMGI went down dramatically, thus reducing its ability to make acquisitions. So such a model will be very susceptible to market sentiments. The whole investment strategy becomes market-driven rather than in the creation of value. We believe our model is better: we get private equity investor participation in our funds. We can wait until the right time, irrespective whether the market is high or low.

What is the average investment commitment you look at?
We have two key focus areas in Asia. In the infrastructure space, where the companies are very capital intensive and relatively large, our investment could be in the range of $10–30 million. With a $750 million corpus for the Asian region, I think that our ability to do multiple investments of that size is fine. In the other category, of support companies, we are looking at a range of $2–10 million.

What is the usual time-frame before you exit from the investments?
Traditionally, venture capitalists have looked at investments maturing over four to seven years. However, with the Internet, dot-com and such other companies going in for listing within a year or two of their incubation, the investment maturity time has come down. We think that this is an aberration and the world will go back to the more traditional investment model, where companies were made public after having earned some revenue and profit, and not just on hype. We are in a business where it is important to find a good technology and help it grow over a several-year period. So our exit time frame could range from four to seven years. We are thus not so worried about the stock market and its daily gyrations. If you make investments in good companies, eventually the returns will be there.

Yograj Varma
in New Delhi