As in all great entrepreneurial success stories, success requires a) facing a lot of rejection, b) hard work and perseverence and b) a bit of luck
Knowing that they needed to build revenues to add to their $400,000 seed capital before they could move into the emerging LBO activity, they started a mergers and acquisitions practice.
"I had a pretty good feel about how CEOs felt about investment bankers," recalls Mr Peterson, who had been both. Mr Schwarzman says: "We thought $400,000 was a bunch of money and we watched it like an hourglass. We lost half of it before we had our first dollar of revenue."
"Starting the private-equity business was even harder - oh my gosh, that was hard!" says Mr Schwarzman. "Our first 19 best prospects turned us down one after another; 488 potential investors turned us down. There were some crowning moments of embarrassment ... We were on the road for a long time and it was hard to be told 'no' by a lot of our friends."
Then came a breakthrough. "Garnett Keith (Prudential Insurance Company's vice-chairman) was eating a tuna salad sandwich. It was a Friday in Newark and I was not expecting success," says Mr Schwarzman. "He took a bite out of his sandwich and said, 'I will give you $100m'. I was shocked into silence: I was so grateful, so appreciative ... I knew others would follow."
They did. Blackstone's maiden fund won 32 investors. Even so, the pair came within "a whisker of failure", admits Mr Schwarzman. The fund closed days before the October 1987 stock market crash. "If we had not closed the fund, investors could have withdrawn support. It was either good luck or good timing."
Either way, Blackstone began making its private-equity investments when asset prices were suddenly depressed. Blackstone and other buy-out groups snared assets on the cheap. Their first deal involved USX, a steel and energy group that had been stricken by industrial action and was under attack by Carl Icahn, the corporate raider.
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