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Feb 17, 2010

Ex-Carlyle Partner Grady Sees Opportunity In Wide Open Spaces

By Tomio Geron

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Former Carlyle Group managing director Robert Grady, who joined Cheyenne Capital Fund as managing director in 2009, has made his first investment for his new firm, in online English-language education company Eleutian Technology LLC. Cheyenne invested $10 million for growth financing in the Ten Sleep, Wyo.-based Eleutian, which had year-over-year revenue growth of 69 percent in 2009 and broke even on a net income basis.

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Prior to Carlyle Group, Grady was a partner and managing director at investment bank Robertson Stephens & Co., and was deputy assistant to President George H. W. Bush and executive associate director of the federal Office of Management and Budget.

We caught up with Grady to talk about the Eleutian investment, online education and why Wyoming is the right spot for the company.

You have invested in education and English-language learning before with Wall Street Institute and Blackboard Inc., which went public in 2004. What do you like about this space and this company in particular?

First is the market. It’s very large and very attractive. Our estimates are it’s as large as $100 billion probably just in Asia. Learning English is correlated with upward mobility and aspirations for a better life in China, South Korea and other rapidly emerging economies. We’re lucky American English is becoming adopted as the global language of commerce and negotiation.

Eleutian’s model is a little different (than other companies I’ve invested in). This is mostly online training using video technology over the Web. It’s teaching conversational English to students in a classroom setting. But it’s Americans teaching in front of the room on video.

Has the technology reached a point where students feel like they’re actually in a classroom with a teacher in another country?

A business like this in rural Wyoming would probably not be possible a generation ago. Here we are with employment being a significant concern. This business employs hundreds of Wyoming teachers halfway around the world. It’s an interesting new model for rural America that’s really made possible by the advances in telecommunications over the last three decades.

This is your first deal for Cheyenne Capital Fund. Any Wyoming connection there?

Cheyenne’s first and largest investor is the state of Wyoming, so there’s a synergy there (the state has committed $225 million to the firm). And if you boil it all down, this is a company that is in Wyoming. A number of other VCs looked at it. But they said, ‘This is great. Let’s move you to Silicon Valley.’ I wouldn’t have invested in it in Silicon Valley, I actually think it’s an advantage being in Wyoming. Our view is you have a large population of highly qualified teachers in Wyoming and you have the telecommunications infrastructure to conduct business. It’s a growth company and a very attractive growth equity investment. So it happened I had (already) moved to Wyoming to invest on behalf of Cheyenne.

What will be your investment focus for Cheyenne Capital?

Cheyenne is a private equity fund that is a hybrid, investing both in funds - as a fund-of-funds - and directly in companies. My experience is in growth equity and venture capital. I expect to continue in this category of growth investing. I’ve also been associated with a buyout firm and the existing partners at Cheyenne have a long history of buyouts. One of the important things for Cheyenne Capital is my coming to the team gives them the ability to enhance the ability to do direct investments, which I have done with both Carlyle and Robertson Stephens.