“How big a percentage?” asked Gates.
Well, he hadn’t thrown me out. It reminded me of the old joke about a man who asked a woman if she would become a millionaire’s mistress for a million bucks. She said, ‘Yes.’ Next he asked her if she would sleep with him for $100, and she asked, ‘What kind of a woman do you think I am?!’ His answer — ‘We’ve already established that; now we’re just negotiating.’
“Financials first.”
He looked at me for a moment, and then said, “Our gross revenues for the year ending in June were between $24 and $25 million. Our gross income was between $5 and $6 million.”
“Thank you.” This was roughly in line with what Missy and Jake had come up with. Sales were on the high side, income was on the low side. I had been guessing gross margins of 25–50 %. I knew the net income was going to be lower yet. I started doing some numbers in my head.
I looked over at my host. “I was thinking that for the $5 million, that should be worth about ten percent of the company.”
Gates smiled for the first time. “That only values Microsoft as worth $50 million. That seems awfully low.”
“What do you think it’s worth?” I countered. Time to dicker.
“Several times that. Maybe $150 million, at least.”
I shook my head. “Six times current sales? Thirty times current earnings? I would think that would be an extraordinary valuation, don’t you?”
“As you said earlier, over lunch, the future is going to be digital. This is the chance to start at the ground floor with the company that will lead the way.”
“The future will be digital, but the question is, will it be Microsoft? There are other companies out there as well. I can always take my money down to Palo Alto and see what other companies are doing. Heck, I can just take my money and buy land in the valley, and wait for somebody to pay us top dollar for the land!”
We went back and forth for several more rounds. I wanted to get in, but I wasn’t going to slit my throat for the privilege. Likewise, Gates wanted the cash. I was offering almost his last year’s gross earnings for a piece of the pie, and probably over a 50 % premium over his net earnings.
It took us another hour, but we settled on a rough valuation of $100 million, which would make my offer equivalent to 5 % of the company. Anything more would have to wait on our analysis of the financials. “When do you want to do this?” he asked.
“I’ll call home before the end of the day. I’ll get my team out here by the end of the week. I’ll stick around until then. When can you make it official?” I responded.
“I’ll need to meet with the board, and Paul, of course.”
I nodded and stood up. “Well, you need to make your calls and I need to make mine. Speed is of the essence in the digital world, speed of the computers and speed of the deals. I want to make this happen as soon as possible.”
“Understood. Go make your phone calls.” We shook hands and I left.
I drove back to the Holiday Inn and dug out my address book. It was well after five on the East Coast, but I didn’t care. I called Jake Senior at his home, and caught him before he went to bed.
“How did it go?” he asked. “Do you know what time it is here?”
“It’s time for you to make some flight reservations. I want you and Junior out here as soon as you can, to review the books,” I replied.
“So it went well?”
“Better than I had hoped. He offered us five percent of the company and a seat on the board. I told him I would stick around until you two flew out here.”
I heard Jake whistle on the other end of the line. “I’ll make the calls in the morning…” he started.
I laughed. “Make the calls now! I want you two out here as soon as possible, and pack extra clothing. You guys can live out here until this is finalized! Call Junior tonight! Move, move, move!”
Jake laughed through his grumbling. “Okay, give me your number and get some rooms booked. I’ll call you in the morning. I’m also telling John to smack you for keeping me from my beauty sleep.”
“Lost cause, Jake.”
“After he smacks you, I’m going to smack you for being a smartass!”
We hung up and I called Marilyn, and told her I wouldn’t be home for a few more days. My wife was pretty good about my hours and travel. It had never been a problem before, and it wasn’t this time either. She told me to come home soon, and that we were going to go see Harlan and Anna Lee in a couple of weeks.
The two Jakes flew out Wednesday afternoon, and I introduced them to Bill Gates the next morning. He in turn introduced his finance people, and we sent them all off to start working. Back in his office, he commented, “They seem competent. How did you build your group?”
“Well, three of them have been with me since I was a teenager. John and Melissa were my lawyer and stockbroker when I was 13, Jake, the older Jake, was my accountant. Jake Junior is Jake’s oldest son, and he just joined his father as a tax lawyer. The first three I have known since I was a kid, and I trust them with my life. Junior I trust, too, and I trust his father to keep him in line,” I laughed.
“If the numbers work, we can do this in a few weeks time,” he told me.
“We’ll make it work.” I excused myself and said good-bye to the Jakes, and then left. I had an afternoon flight back home.
Chapter 73: Work and Home
Friday morning I met with John and Missy in our offices. “I gather it went well,” commented John.
I nodded and smiled. “I thought it went very well. I’ll let you know after we sign the papers. Until then, nothing is definite.”
“You have learned wisely, Grasshopper,” he said, imitating the television series, Kung Fu.
“Thank you, Master,” I replied, bowing towards him.
“Great, now we have you two doing bad television,” said Missy. “So tell us, how did it actually go?”
“Good. I think what did the trick was my math background. I told them that no matter how many different bankers and investors they saw, I was going to be the only one who actually understood whatever the hell they were talking about. Paul Allen, one of the cofounders, actually knew about my work with Professor Rhineburg up at RPI.”
She nodded in understanding. “So you’ll be our board member and the main contact.”
“Sounds like. I mean, we can talk about it if anybody has a problem with it, but in this case, I think it’s a necessity. As we go forward though, that will probably change.”
“I think it should either be the person who brings in the deal, or somebody we all agree on,” said John.
I nodded, and Missy asked, “May I assume you will be getting directors and officers liability insurance through them?”
I actually had my mouth open to answer, but I realized I wasn’t even sure what she was talking about. I motioned for her to continue. “What are you talking about?”
“Liability insurance, in case Microsoft, or any company, does something that causes a law suit. It protects you from expenses involved in any litigation,” she answered.
I looked over at my old time lawyer. “Really?”
“Really. I’ll call Jake and make sure it’s included in the deal. Usually it’s a package deal for all the directors and officers in a company.”
“Do we have it? Speaking of which, do we have any insurance on us? You know, in case old geezers, not to mention any names, fall down?”