On March 13, 1986 Microsoft went public
Exactly 32 years ago today, a 30-year-old Bill Gates was anxiously watching a stock ticker and likely realized he had made a huge mistake.
Gates was adamant at the time that Microsoft shouldn’t be worth more than $500 million, the market thought otherwise.
Here are some crazy facts about the IPO:
1. The pricing
Shares were first marketed at $15 but strong demand pushed the range higher. Underwriters wanted to push it to $20-22 but Bill Gates felt secure with a minimum price of $16, believing that at this price, there was little risk of having to lower it, and he was uncomfortable with the $20 price because it would push Microsoft’s market value above a half billion dollars, which he believed was too high. Later in the process, Goldman told him about extremely strong demand and he pushed it to $20-21 and wanted to go higher but it was Goldman who then told him that could scare investors away. By the end of the first day of trading, the stock price had risen to $31.25, making the company worth more than $1 billion.
2. Bill Gates didn’t want to have an IPO
Microsoft didn’t need money. The company was already very profitable in 1986 with pretax profits near 34% of revenues. There also wasn’t pressure from venture capitalists to invest because only one firm (David Marquardt) had invested and held 6.2% of the company. Ultimately, what swayed him was that many employees had been granted stock options and the SEC had a limit of 500 shareholders before the company would need to register and report. He anticipated he would hit 500 the next year and Gates reluctantly agreed to the IPO.
3. How Goldman Sachs won the lead
Gates and senior executives were very hands-on during the process but Wall Street didn’t have much experience underwriting tech and Microsoft was a huge IPO in its time. Ultimately, a huge syndicate was created but Goldman Sachs won the lead. How? Following an expensive dinner with Goldman Sachs, Gates said, “Well, they didn’t spill their food, and they seemed like nice guys.” They earned $4 million in fees on the deal.
4. Gates did well
Gates got $1.6 million in cash in the IPO but held onto most of his shares. After the first day of trading, Gates’ stake in Microsoft was worth $350 million and would soon be the world’s youngest billionaire.
5. It was a one-way rocket for 14 years and then a dud for 16
If you bought $1000 worth of Microsoft shares at the open 32 years ago, it would be worth $1,026,000 plus thousands in dividends each year since 2003. Adjusted for splits, the shares opened at just above 9-cents and averaged a gain of about 12% per month for the first year of trading and enormous gains continued through the millennium followed by 16-year lull.
For more on the IPO, see the 1986 Fortune article by Bro Uttal, which contains this strangest revelation of all:
“Oddly, Gates is something of a ladies’ man and a fiendishly fast driver
who has racked up speeding tickets even in the sluggish Mercedes diesel
he bought to restrain himself.”