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Nov 18, 2010

Interview: Bob Grady on Investing in Eleutian Technology

November 17, 2010 - Big Horn Radio Network - Robert E.Grady, Partner and Managing Director at Cheyenne Capital Fund and Chairman of Eleutian Technology, speaks to David Koch about why he chose to invest in the future of Eleutian Technology. The interview covers everything from globalization to English instruction as well as the recession.

 

AUDIO: Interview with Robert E. Grady, Big Horn Radio Network

 

The following is the transcript from the interview:

 

David Koch: Why did you invest in Eleutian Technology?

 

Bob Grady: First, it is a great and growing company.  (Eleutian) is serving what we believe is a very large, indeed, gigantic market.  The market for English language instruction is a $100 billion market globally.  I think that the online part of that is going to be the fastest growing part of that market, and it will gain share. Second, Eleutian Technology is the market leader in that area.  Third, and on a personal note, I had had some experience investing in education in the past. At my former firm, I was the partner of The Carlyle Group which is one of the world’s largest private equity firms.  I ran the venture capital arm at Carlyle. I had invested in one of the first companies that provided educational software called Blackboard.  That company came public and today, it’s a billion and half dollar market-cap company. I invested in another company called Wall Street Institute, which taught English to people, not online but at centers around the world.  They were mostly in Europe when we invested in them, although what we did was grow their operations in China, and that was a very successful investment for us.  It was ultimately sold to a large British media firm, Pearson.  I was a believer in both online education and a believer in English as a really interesting market. Third, this company was the market leader. Kent Holiday had established a great team. (Eleutian) was the first ones out there, who had actually succeeded in being hired by K-12 entities. Korea is really the first market, now we are getting hired in China. So I think they had a jump on others. Fourth, at Cheyenne Capital Fund, our business is to invest in great growth opportunities in the private capital markets. We are a fund that is funded by the state of Wyoming. Our largest limited partner is State of Wyoming Permanent Fund.  It just so happened that it was a great company in the market we knew about that was already profitable, that was based in Wyoming!   I live in Jackson, Wyoming, and it was an opportunity to invest in somewhere reasonably close with big advantages in terms of the quality of teachers, in terms of taking advantage of technology in the world, in terms of a visionary CEO. I just got very excited, and then obviously, we did our due diligence. So far, it’s been a great investment, although we are a young start-up company.  We have a long way to go and a long way to grow.

 

David Koch: Did the globally recession ever cause you to have any second thoughts?

 

Bob Grady: No, not particularly. I think the global recession is affecting all kinds of businesses. Interestingly, Eleutian grew sales right through the global recession. I don’t think the demand to learn English is particularly elastic with respect to the quarter to quarter economic growth.   When you look at who is emerging from global recession with the fastest GDP growth rate, you see that it is the emerging economies. It is China. It is the rest of Asia. It is the rest of the world. It is Africa and Latin America as well.  And so, as you see in this kind of post-crash period, you have growth rates in the West that are 1-2% of GDP and you have growth rates in China that are 9%of GDP. So I think that the strength, the emergence of these emerging markets is part and parcel with the evolution of English as an interesting market. And if you go to China or Korea and you talk to a family, those parents often view the learning of English by their child as the path to a better life. They view the learning of English as correlated with joining the global economy and having a higher standard of living. So, there is a lot of attractiveness out there in the emerging markets right now, as economies and as a place to invest. This is a way to benefit from that growth in the emerging markets by investing in a company, right here in Wyoming, and right here in the United States.

 

David Koch: Can we get lessons from that for America itself to get out of its current recession?

 

Bob Grady: Yes, we can. I do think it is essential as America thinks about how to get out of the current recession that it thinks about, first, what are our competitive strengths and what are we going to be good at and invest in those strengths. I would say we need to invest in universities; we need to invest in infrastructure, in education, K-12. We need to invest in things that will make us more productive in the future. Secondly, I think that America needs to remain engaged with the world. America has been a big beneficiary, I am happy to say that on the record of globalization, and we are the market leader in the world.  And as the world is integrated, there are tremendous opportunities for Americans, not only to sell English language instruction, but to sell technology, to sell agriculture products, to sell goods and services of all kinds - that we’ll be great at producing. What will not work, in my view, is to put up protectionist walls, and to say, because we had a little correction after a period of 25 years of fantastic growth in the US economy. Because we had correction, that we are suddenly going to withdraw from the world, and have trade wars with China, trade wars with Latin America, and trade wars with other countries. At the end of the day, that will hurt US farmers, it will hurt US manufacturers, it will hurt US software companies, technology companies, and it will hurt English language providers, like Eleutian Technology. So there is a big lesson there. And I think a third lesson is that the amazing advances in technology and telecommunications make possible all kinds of new business models that can be beneficial to Americans and beneficial to people in Wyoming. This company, Eleutian Technology, would not have been possible without the phenomenal advances in the Internet, telecom, the size of broadband, connectivity and cable connectivity and fiber connectivity around the world, without advances in video compression technology, without all the advances in telecom and technology that have occurred in the last 35 years. That is what made it possible to teach English over the Internet with high quality teachers, (who are) sitting in their hometown in Wyoming. Just as this business model is made possible by that, I think there are a thousand, ten thousand business models which we haven’t even thought about yet, that all of a sudden is made possible, because of telecommunications and technology. You think of people who have always said, “China, a billion person market. How can we access it?” And frankly, 20, 50, 100 years ago, it was really hard.   One hundred years ago you had to send ships over there and have a hostile reception. Now, that billion and a quarter of people in China have more Internet users than we have in the United States, there are more Internet users than any other country in the world. The level of Internet penetration is growing. That group of people is growing. Cell phone subscribers are being added at a rate of 6 million a month in China and in India. All those people are connected to the world economy. They can buy software, information, and they can learn about medical devices. But they can also buy and sell from each other. So one of the big opportunities for Americans actually, from globalization, is this growth from the emerging economies. They are going to become importers. Import percentage of China’s GDP was zero in 1994. Today, they are approaching 50%. So that is going to be a big market that we can serve with lots of product and services, including the teaching of English. For now, Eleutian will just focus on teaching of English.

 

David Koch: President Obama is on his way over to Asia right now, trying to open up some of those markets. Would you have any advice for him?


Bob Grady: Yes. I would advise him to invest in growth so that the United States can be competitive; not waste the money on other things. I think he’s spent too much, frankly, on some things that won’t contribute to the future productivity of the United States, entitlements of various types. Secondly, I would advise him to remain engaged and make the case for the benefits of trades for the United States. The United States is a trading nation. We are one of the biggest beneficiaries of global trade. We should be pleased that these emerging markets have all grown up on the capitalist model, with investment led capitalism peacefully. (These Asian countries) have not taken anybody over, but what they have done is grow their middle class and they can be consumers of US products, services, everything from technology to clothes, legal services, wheat, and corn. They are going to be consumers of all these things - steel, copper, (and) obviously all the natural resources. My advice to him is that, yes, protectionism won’t work, he needs to forge partnerships so that we can open up these markets that are growing to American products and services and we will all be better off as a result.

 

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SOURCE: Big Horn Radio Network