The Facebook-Microsoft Parallels !!
A computer prodigy drops out of Harvard and builds one of America’s hottest companies. He brings on an M.B.A. to help him think about things other than programming. He wants to keep his very profitable company private. But as his company grows, he begins distributing shares to his ever-increasing employee base. This gives his company more than 499 shareholders and forces him to consider an initial public offering. The investment bank Goldman Sachs plays a major role in the I.P.O.
This isn’t Mark Zuckerberg in 2011. It’s Bill Gates in 1986.Twenty-five years ago, Mr. Gates was dealing with uncannily similar issues to the ones facing Mr. Zuckerberg today. And Goldman was wooing Mr. Gates and his decade-old Seattle software company, Microsoft, in much the same way that it has romanced Mr. Zuckerberg and his fellow Facebook executives. (In case you missed it, Goldman has invested $450 million in Facebook at a $50 billion valuation and is raising a pool of capital from its clients to invest alongside the firm. All this likely makes Goldman the lead candidate to handle Facebook’s I.P.O., now expected sometime next year.)
In July 1986, Fortune magazine published a 5,500-word story by Bro Uttal about Microsoft’s I.P.O. process. Here’s a description of Microsoft’s then-revolutionary business: “Microsoft’s biggest hits are the PC-DOS and MS-DOS operating systems, the basic software that runs millions of I.B.M. personal computers and clones.” And here’s Fortune on why Mr. Gates eventually capitulated, reasons that would seem eerily familiar to Mr. Zuckerberg: “To attract managers and virtuoso programmers, Gates had been selling them shares and granting stock options. By 1987, Microsoft estimated, over 500 people would own shares, enough to force the company to register with the S.E.C. Once registered, the stock in effect would have a public market, but one so narrow that trading would be difficult. Since it would have to register anyway, Microsoft might as well sell enough shares to enough investors to create a liquid market, and Gates had said that 1986 might be the year.”
Mr. Gates’s chief financial officer, Frank Gaudette, held a beauty contest to choose an investment bank to handle its debut. A few years earlier, Mr. Gates had recruited another business-minded executive, Steve Ballmer, to join the company.
“Among the major houses, Gaudette had been most impressed by Goldman Sachs, which tightly links its underwriting group with its stock traders and keeps close tabs on the identity of big institutional buyers,” Fortune wrote. “For those reasons, Gaudette thought Goldman would be especially good at maintaining an orderly market as Microsoft employees gradually cashed in their shares.”
Mr. Gaudette called Eff W. Martin, a young Goldman banker in San Francisco who had been calling on Microsoft for two years, reported Fortune. He invited Martin and his Goldman colleagues to a dinner in Seattle to meet Mr. Gates. The dinner was awkward, Fortune said, and “it was not until talk turned to pricing the company’s stock that Gates folded his arms across his chest and started rocking to and fro, a sure sign of interest. At the end of dinner, Martin, striving to conclude on a high note, gushed that Microsoft could have the ‘most visible initial public offering of 1986 — or ever.’”
“‘Well, they didn’t spill their food and they seemed like nice guys,’” Mr. Gates drawled to his colleagues afterward in the parking lot, according to Fortune. “‘I guess we should go with them.’”
On March 13, 1986, Microsoft had a hugely successful I.P.O. Priced at $21 a share, the stock spiked to $35.50 before closing at $27.75. The Microsoft chief financial officer called Seattle from the Goldman trading floor: “It’s wild! I’ve never seen anything like it — every last person here is trading Microsoft and nothing else.”
The I.P.O. put a $350 million value on Mr. Gates’s 45 percent stake, making him one of the wealthiest men in America at 30 years old.
About a year from now, if all goes as Facebook and Goldman plan, expect a similar scene at 200 West — the investment bank’s new state-of-the-art headquarters in Lower Manhattan.
We can see it now. The firm’s chief executive, Lloyd C. Blankfein, and his team of traders will be wearing hoodies in Mr. Zuckerberg’s honor. Mr. Zuckerberg, already jaded at 27, might not be there, but his No. 2, Sheryl Sandberg, a Harvard M.B.A., surely will.
Everyone will be happy, and very, very rich.
