Throwing out a pile of old newspapers, as you do, a back-page story in the Sunday Times Business News caught my eye. In a column bemoaning the fact that "private equity's bonanza days are over," Luke Johnson claimed that "early-stage funding for technology companies ... led to the rise of countless world-beaters from Microsoft to Apple, Google and Facebook."
It's a good story. The problem is that, in Microsoft's case, it isn't true. In fact, Bill Gates' refusal to take venture capital was how he accidentally became the world's richest man.
It's certainly true that most internet company founders now trade shares for venture capital investments. The cash enables them to build substantial businesses before they start to worry about becoming profitable. Google, Facebook and Twitter all did it. The drawback is that when they go public to pay back their investors, the founders may not have much left. Facebook's Mark Zuckerberg did well to emerge with 28 percent, but it might have been 15 percent or even less.
After Microsoft went public, 30 years ago this month, Bill Gates still owned 45 percent of the company. If only he'd held on to his stake, Gates would be worth $193 billion today, instead of a measly $81 billion.
The main point is that Gates became the world's richest man because that wasn't his intention. He refused to take venture capital to expand faster, and he tried to avoid going public even after rivals such as Lotus Development and Ashton-Tate showed it was a quick route to vast piles of cash.
Fortune magazine pointed this out in its cover story on Microsoft's IPO in 1986:
Unlike its competitors, Microsoft was not dominated by venture capital investors hungry to harvest some of their gains. The business gushed cash. With pre-tax profits running as high as 34 percent of revenues, Microsoft needed no outside money to expand. Most important, Gates values control of his time and his company more than personal wealth.
Of course, Microsoft was still a small company way back then (1985 turnover was $140m), and when Microsoft shares opened at $21, Gates only got $1.6 million for the shares he sold. (Very sensibly, he paid off his mortgage.) Even after the shares settled at $31.25, Gates's paper fortune was only $350 million, which is roughly what Twitter spent on MoPub.
So, the real reason Gates became absurdly rich was that the value of each Microsoft share increased by around 60,000 percent. Most of that growth was driven by the success of Windows 95 and Microsoft Office, and by the internet-inspired dotcom bubble. It didn't last - Microsoft was found guilty in the anti-trust courts and the dotcom bubble burst - though the shares are now closing in on their all-time high (see graph).
Gates isn't as rich as he could be because, following the anti-trust case, he started removing himself from Microsoft. He stepped down as CEO in January 2000, started working part-time in 2006, and stopped working in 2008, though he remained chairman until 2014. He also sold off almost all of his Microsoft shares: Gates now owns less than 3 percent and is no longer the largest individual shareholder. That honour goes to Steve Ballmer.
Gates had a long run as the world's richest man, from 1995-2007, before devoting himself to good works. What is perhaps more surprising is that even after giving $28bn-$38bn to the charitable foundation he runs with his wife Melinda, Gates's wealth has doubled to put him back on top.
According to the Wall Street Journal, most of the credit should go to Gates's "secretive money manager Michael Larson". He's been managing Gates' wealth, via Cascade Investment LLC, for more than 20 years. (See: This Is The Man Making Bill Gates So Rich.)
It would be reasonable to assume that someone who became so absurdly rich must have been driven by a lust for money. That was never the case with Gates. Indeed, he often wished he wasn't the world's richest man, because of the attention - and envy - it attracted. He is, after all, a software geek with modest hobbies: mainly playing bridge with Warren Buffett and reading books.
As he told students at the University of Washington: "I can understand wanting to have millions of dollars, there's a certain freedom, meaningful freedom, that comes with that. But once you get much beyond that, I have to tell you, it's the same hamburger."