Saturday, May 18, 2013

Duke University's PEU Board Chair

The Duke Chronicle reported:

The Board of Trustees elected David Rubenstein, Trinity ’70, as Board chair in its meeting this weekend. Rubenstein, co-founder and co-CEO of private equity firm The Carlyle Group, is well known for his philanthropic support of the University, having donated over $50 million to the University. His most recent contribution to Duke was a $10 million donation to the Sanford School of Public Policy, announced Apr. 30. He has been on the board for eight years, and has spent the last two years serving as co-vice chair with Jack Bovender, Trinity ’67 and Graduate School ’69.

David Rubenstein earned billions as a private equity underwriter, which he's ready to give away as a member of the Bill Gates Giveaway Club.  Private equity underwriters buy and flip companies.  Rubenstein brags of Carlyle's 30% annual returns and has been know to show displeasure at removing PEU's preferred tax status.

PEU ties to Duke's board include Rubenstein's former Co-Vice Chair Jack Bovender.  Bovender's HCA sold out to KKR, increasing health care costs by billions in interest expenses.  In addition KKR bled over $4 billion in cash from HCA prior to taking the company public.  Bovender sits on the board of Bank of America.

PEU's became ubiquitous in the last decade, which might be foundational to Rubenstein's comment about Duke's board:

“The Board is not divided as some university boards that have big splits,” he said. “This Board works very collegially. It’s a pleasure to sit through the board meetings.”

Duke's board isn't divided, like the University of Virginia, a fellow ACC institution.  Ironically UVA's board split along private equity lines.

Duke has an administrator-faculty split, which expressed in the Board meeting over online education.

Provost Peter Lange discussed online education with the Board in the aftermath of the Arts and Sciences Council voting down for-credit online courses.

The Arts and Sciences Council vote broke a pre-existing contract with internet education company 2U, which entered the University as a partner in the company’s Semester Online consortium of schools.  Prior to the vote, neither the decision to pursue online courses for credit nor the decision to sign with 2U was voted on by any faculty body or committee

Lange said the discussion with the Board was brief. They discussed why the issue was voted down and how administrators will follow-up on the matter in the Fall. 

He said the outcome of the faculty vote was in large part a result of timing. “The intense opposition came up very late and we had to get a vote by the end of the semester if we were going to start in the Fall, so things got kind of squeezed,” Lange said. “As a result we weren’t really able to talk through all the issues with people who were so intensely opposed and the vote went against us. It was really low key.” 

He added that administrators still plan on moving forward with Semester Online, but did not specify in what capacity.

2U is a PEU affiliate of Highland Capital, Bessemer Venture Partners, Redpoint. Ventures Semester Online is a joint venture between 2U and top tier universities.  2U is really 2tor, which was formed in 2008.  SEC documents indicate 2tor raised $26 million in capital in March 2012, their fifth capital raise.

2U's CEO and co-founder Chip Paucek graduated from George Washington University with a degree in political communication.  He started Cerebellum Corporation, which focused on educational videos and online resources for elementary, middle, high school and college educators and students.  He also worked for two other venture companies and a political campaign over his professional career.

Chip's bio at former employer Educate, an Apollo sponsored entity, stated:

Christopher (Chip) J. Paucek became the President of Educate Products in November 2005. From January 2005 to November 2005 he was General Manager of Hooked on Phonics and from July 2004 to January 2005 he was Vice President of Corporate Business Development for Educate, Inc. From January 2004 to November 2004, he was Deputy Campaign Manager of U.S. Senator Barbara Mikulski’s 2004 re-election campaign. In December 1993, he founded Cerebellum Corporation and served as Co-Chief Executive Officer from that month until January 2004. Cerebellum Corporation sold products under the Cerebellum and Standard Deviants brands and produced, among other things, the PBS television series Standard Deviants.

Educate management led a buyout of the company with backing from Sterling Capital.  Analysis of the deal highlighted numerous problems relative to Educate products, including poor mix and sell through.   

Private equity's goal is to flip companies for big profits.  How will Duke help 2U's CEO and PEU owners cash in big?  How will Board Chair & PEU David Rubenstein factor into the equation?