Steve Ballmer

That's exactly right.

Hey, that's Forex multiple expansion off the last time they raised money.

Hey, that's Forex multiple expansion off the last time they raised money.

So Bill Gates and Warren Buffett did a conversation at the University of Washington in 1998. So this is as late as 1998. This thing that we're talking about, the magic of the software business model and how it should be reflected in a company's valuation, especially when it's a high growth company, was still not understood even by Bill Gates himself. So here's the quote.

So Bill Gates and Warren Buffett did a conversation at the University of Washington in 1998. So this is as late as 1998. This thing that we're talking about, the magic of the software business model and how it should be reflected in a company's valuation, especially when it's a high growth company, was still not understood even by Bill Gates himself. So here's the quote.

Bill Gates says, I think the multiples of technology stocks should be quite a bit lower than the multiples of stocks like Coke and Gillette because we are subject to complete changes in the rules. I know very well that in the next 10 years, if Microsoft is still a leader, we will have had to weather at least three crises. So Bill Gates is essentially making an argument.

Bill Gates says, I think the multiples of technology stocks should be quite a bit lower than the multiples of stocks like Coke and Gillette because we are subject to complete changes in the rules. I know very well that in the next 10 years, if Microsoft is still a leader, we will have had to weather at least three crises. So Bill Gates is essentially making an argument.

Now, granted, this is in the middle of all the antitrust stuff, so he's very prime for this.

Now, granted, this is in the middle of all the antitrust stuff, so he's very prime for this.

And the internet.

And the internet.

He's basically making the argument that disruptive forces come at you so fast in the technology industry that even though you can grow extremely fast and it's this extremely scalable thing, distributing software at zero distribution costs, and even though the margins are unbelievable because you have zero marginal costs, they still shouldn't be valued as highly as like a CPG company, which is so different than the way that people think about it today.

He's basically making the argument that disruptive forces come at you so fast in the technology industry that even though you can grow extremely fast and it's this extremely scalable thing, distributing software at zero distribution costs, and even though the margins are unbelievable because you have zero marginal costs, they still shouldn't be valued as highly as like a CPG company, which is so different than the way that people think about it today.

Companies that are less susceptible to disruption, more predictable in terms of high growth, high margin revenue, deserve a premium. But Gates is basically arguing everyone else doesn't. So let's flash all the way back to 1981 and talk about this venture capital investment, this one-on-20 that TVI does. Good work if you can get it, man. How does this come to be?

Companies that are less susceptible to disruption, more predictable in terms of high growth, high margin revenue, deserve a premium. But Gates is basically arguing everyone else doesn't. So let's flash all the way back to 1981 and talk about this venture capital investment, this one-on-20 that TVI does. Good work if you can get it, man. How does this come to be?

So even a whole year before, in the fall of 1980, Dave Marquardt, one of the partners and the founders at TVI, flies up to Seattle, not to meet Bill Gates, but to meet Steve Ballmer. Because they were classmates at GSB, right? They weren't quite classmates, but because I think they were two years apart, so they didn't overlap, but they had some of the same social circles.

So even a whole year before, in the fall of 1980, Dave Marquardt, one of the partners and the founders at TVI, flies up to Seattle, not to meet Bill Gates, but to meet Steve Ballmer. Because they were classmates at GSB, right? They weren't quite classmates, but because I think they were two years apart, so they didn't overlap, but they had some of the same social circles.

And Steve was effectively the screener for anyone who wanted to come and talk to Bill and try and invest in the business. T.A. Associates had been up, Sutter Hill had been up, Hambrick and Quist had been up, Xerox Ventures, and all of them only ever got to meet with Steve Ballmer and never got passed on to Bill Gates. Steve would basically just bounce them off.

And Steve was effectively the screener for anyone who wanted to come and talk to Bill and try and invest in the business. T.A. Associates had been up, Sutter Hill had been up, Hambrick and Quist had been up, Xerox Ventures, and all of them only ever got to meet with Steve Ballmer and never got passed on to Bill Gates. Steve would basically just bounce them off.

And I know all this because there's a great oral history from the Computer History Museum where this whole thing's in a transcript with an interview with Dave Marquardt kind of recalling the whole thing. So Dave flies up to meet with Steve and Steve says, you're asking really interesting questions. You're thinking about our strategy the right way. You don't just want to do a transactional deal.