Two garages, two fortunes: how Microsoft and Apple became unstoppable

Microsoft and Apple followed remarkably different paths to dominance—one bootstrapped and cash-rich, the other venture-backed and nearly broke before its angel investor arrived. Microsoft never needed outside capital, achieving 34% profit margins while taking only $1 million in VC money it didn't require. Apple, by contrast, survived its first two years largely due to Mike Markkula's $250,000 lifeline in 1977. Both companies benefited from extraordinary luck at critical moments—the IBM deal for Microsoft, VisiCalc for Apple—yet both also demonstrated strategic brilliance that separated them from dozens of forgotten competitors.

Microsoft was profitable from day one and deliberately avoided venture capital

Microsoft's financial trajectory defied startup convention. The company earned $16,005 in its first year (1975) and never recorded an annual loss through its 1986 IPO. By 1980, revenue hit $8 million with 40 employees; by 1986, it reached $197.5 million—a compound annual growth rate exceeding 100% for a decade.

Bill Gates took only one venture investment: $1 million from Technology Venture Investors (TVI) in 1981 for 5% equity, implying a $20 million valuation at roughly 4x revenues. Partner David Marquardt later recalled his colleagues' skepticism: "Paying four times revenues for a software company—everyone told me that's ridiculous." TVI's $1 million stake was worth $48 million at IPO, and vastly more afterward.

But Microsoft didn't need the money. Gates brought TVI aboard strategically—for board expertise and IPO preparation, not survival capital. "We made our money the old-fashioned way: we earned it," CFO Frank Gaudette told investors during the 1986 road show. The company had $72 million in stockholders' equity and no long-term debt at IPO.

Gates actively avoided VCs who "sat through multiple sales pitches monthly." He feared distraction and loss of control, having watched friends like Mitch Kapor at Lotus navigate VC relationships. His family's wealth—father a prominent Seattle lawyer, mother a UW regent—meant he never faced the desperation that drives founders to unfavorable terms. The optimal VC window was 1980-1981, before the IBM deal, when $1 million bought 5% of what would become a $777 million company at IPO.

Apple nearly died in 1977 before Markkula wrote his check

Apple's pre-IPO story involved genuine near-death moments. In August 1976, Ron Wayne sold his 10% stake for $800, fearing personal liability. Steve Jobs was selling his VW bus and Wozniak his HP calculator to fund production. Banks uniformly refused loans. Don Valentine of Sequoia met Jobs and asked colleagues: "Why did you send me this renegade from the human race?"

Mike Markkula changed everything in January 1977. The retired Intel marketing executive invested $92,000 personally and secured a $170,000-$250,000 Bank of America credit line, taking one-third ownership equal to Jobs and Wozniak. His valuation: roughly $750,000 for the company. Markkula demanded Wozniak quit HP and commit full-time; hired Michael Scott as CEO for $26,000 annually; wrote Apple's founding marketing philosophy; and brought the "adult supervision" that transformed a garage operation into a real company.

Even with Markkula, Apple faced a cash crisis in fall 1977 when problems with plastic computer cases depleted reserves. Markkula and Scott personally underwrote $200,000 in emergency loans to meet immediate payroll and supplier needs.

The January 1978 VC round raised $517,500 at $0.09 per share—implying a post-money valuation of roughly $5.2 million. Venrock invested $288,000 for 10%; Arthur Rock put in $57,600; Sequoia added $150,000. By the December 1980 IPO, these stakes had transformed:

Sequoia's Don Valentine made what he later called one of VC's great mistakes: selling Apple's entire position for $6 million before the IPO because limited partners needed tax distributions. This experience led Sequoia to subsequently accept only tax-exempt institutional capital.

Apple's December 12, 1980 IPO—$22 per share, closing at $29—valued the company at $1.778 billion, the largest IPO since Ford Motor Company in 1956. It created roughly 300 instant millionaires, including $217 million for Jobs (age 25) and $116 million for Wozniak.

The SoftCard bought Microsoft time; the IBM deal made it an empire

Microsoft's pre-IBM business rested on licensing BASIC to computer manufacturers—Apple, Commodore, Tandy, and dozens of others. By 1979, Microsoft BASIC was the first microcomputer software to exceed $1 million in annual sales, with 300,000+ users. But licensing flat fees left money on the table: Apple paid $21,000 total for Applesoft BASIC, which shipped on millions of machines—effectively 2 cents per copy.

The Z-80 SoftCard, released in April 1980 at $349, changed Microsoft's revenue picture. Paul Allen conceived the idea while riding in a pickup truck to lunch: rather than rewrite Microsoft's entire software catalog for Apple II's 6502 processor, add a Z80 processor card so the Apple II could run CP/M software. Allen called it "the razor; our languages were the blades."

The SoftCard sold 5,000 units in its first three months and approximately 25,000 units in 1981, generating $8 million—roughly half of Microsoft's 1980 revenue. By 1982, Microsoft claimed one-fifth of all Apple IIs used SoftCards. More critically, the SoftCard's revenue cushion allowed Microsoft to abandon 8-bit development and focus entirely on 16-bit software (8086), positioning them perfectly for IBM.

The IBM deal timeline moved fast:

• July 21, 1980: IBM's Jack Sams first phones Bill Gates
• August 1980: IBM meets Digital Research about CP/M; negotiations collapse over terms
• August 1980: IBM returns to Microsoft for operating system
• November 6, 1980: Formal contract signed
• December 1980: Microsoft licenses 86-DOS from Seattle Computer Products for $25,000
• July 1981: Microsoft purchases all DOS rights for additional $50,000
• August 12, 1981: IBM PC launches with PC-DOS

The non-exclusive licensing clause was transformative. IBM wanted Microsoft to retain ownership—partly from antitrust paranoia, partly because IBM considered the PC a minor project and expected no clone market. IBM set PC-DOS at $40 versus $240 for CP/M-86, effectively guaranteeing Microsoft's dominance: 96.3% of IBM PCs shipped with DOS versus 3.4% with CP/M-86.

Within one year, Microsoft licensed MS-DOS to 70+ manufacturers. The $75,000 total investment in acquiring DOS became the foundation for a company that would reach $197 million in revenue by 1986 and eventual market dominance through Windows.

VisiCalc transformed Apple from hobbyist toy to business necessity

VisiCalc launched exclusively for Apple II on October 17, 1979, priced at $100. It was computing's first "killer app"—and more than 25% of Apple II purchases in 1979 were made specifically to run the spreadsheet.

The numbers tell a transformation story. Before VisiCalc, Apple II was a hobbyist computer. After VisiCalc, Steve Wozniak noted that 90% of Apple IIs were purchased by small businesses, not hobbyists. Retailers began bundling VisiCalc with Apple II as standard offerings. Customers would buy the $100 software first, then add the $2,000 computer to their order. Radio Shack's own executives used Apple IIs running VisiCalc at Tandy headquarters—an extraordinary validation for a competitor.

Steve Jobs acknowledged that VisiCalc "propelled the Apple II to the success it achieved more than any other single event." By 1983, VisiCalc commanded 85% market share in spreadsheet software; Software Arts made $12 million in royalties in 1981 alone. VisiCalc eventually sold 700,000+ copies over its lifetime.

Why Apple II? Dan Fylstra of Personal Software convinced Dan Bricklin to target Apple II instead of DEC minicomputers. The Apple II offered superior graphics, open architecture, and 32KB+ RAM capacity that CP/M machines and the TRS-80 couldn't match. Bricklin and Frankston's choice was somewhat arbitrary—a consequence of the Apple II being most capable at that moment—but the 12-month exclusivity on Apple II established it as the business platform.

The Disk II floppy drive (June 1978) was equally critical. Designed by Wozniak over Christmas 1977, it used a revolutionary 6-chip controller versus dozens used by competitors, stored 113KB per disk, sold for $595 but cost Apple roughly $100 to produce, and replaced unreliable cassette tape storage. Without the Disk II, VisiCalc couldn't have functioned practically. Wozniak called it "the finest piece of engineering he ever engaged in."

Apple's $1.778 billion IPO valuation rested directly on the business credibility VisiCalc provided. The Apple III, launched May 1980 at $4,340-$7,800, was supposed to capture the business market—but overheating issues (Jobs demanded no fan), chips popping from sockets, and a 100% hardware failure rate on early units led to recall and an estimated $100 million loss. Only 120,000 Apple IIIs ever sold, versus millions of Apple IIs.

Both companies benefited from extraordinary luck at pivotal moments

Neither company's success was inevitable. Both faced genuine risks and benefited from fortunate circumstances.

Microsoft's IBM deal involved substantial luck. Gates' mother, Mary Maxwell Gates, sat on the United Way board with IBM CEO John Opel, facilitating the initial introduction. Gary Kildall's negotiation impasse with IBM—over financial terms, not the apocryphal "flying" story—opened the door for Microsoft. IBM's antitrust paranoia led them to accept non-exclusive terms they later called their biggest mistake. And the clone market explosion that made MS-DOS the standard was entirely unexpected.

Yet Microsoft also demonstrated strategic brilliance. Gates' insistence on retaining licensing rights—the clause IBM didn't care about—became computing's deal of the century. Microsoft's aggressive pricing ($40 versus $240 for CP/M-86) guaranteed adoption. Paul Allen's quick execution acquiring 86-DOS from Seattle Computer Products under tight deadlines showed exceptional deal-making.

Apple's luck centered on VisiCalc. If Bricklin and Frankston had chosen CP/M machines or the TRS-80—both viable options—Apple II might have remained a hobbyist curiosity. The company also benefited from TRS-80's limitations (weak graphics, closed architecture) and IBM's late market entry (1981), which gave Apple time to establish itself.

Apple's skill showed in Wozniak's engineering excellence (color graphics, expansion slots, the Disk II), Jobs' marketing vision, and Markkula's business acumen. The combination of product excellence plus capital plus strategic positioning overcame dozens of competitors who had various pieces but not the whole package.

The competitive landscape was fiercer than often remembered. In 1977, the TRS-80 held 60-70% market share; Apple II was a minor player. The Commodore 64, launched in 1982, became the best-selling single computer model ever (12-17 million units). Digital Research's CP/M operated on 3,000+ computer models by 1981, with five times Microsoft's revenue. Success was not preordained.

Conclusion

The early histories of Microsoft and Apple reveal starkly different paths to similar outcomes. Microsoft built a cash-generating machine from day one, avoided venture capital dependence, and got extraordinarily lucky with IBM—then executed brilliantly on that luck through the non-exclusive licensing clause. Apple nearly died twice (before Markkula, during the 1977 cash crisis), required venture backing to scale, and benefited enormously from VisiCalc's arbitrary platform choice—then executed brilliantly on that luck through the Disk II and relentless marketing.

For VCs, the lessons are instructive. Microsoft's optimal investment window (1980-1981) offered 39x returns to IPO, but the company didn't need capital and Gates was protective of control. Apple's optimal window (January 1977) offered 2,200x returns, but required betting on Jobs before any business credibility existed. Both companies demonstrate that the best startup investments often involve either exceptional access (Markkula's Intel network) or exceptional insight.

The counterfactuals matter too. If Gary Kildall had closed the IBM deal, Microsoft might have remained a successful languages company but never achieved operating system dominance. If VisiCalc had launched on TRS-80 first, Apple II might never have achieved business legitimacy, potentially dooming the 1980 IPO. History pivoted on moments that could easily have gone differently—a lesson worth remembering when evaluating today's seemingly inevitable tech giants.