Zero to IPO: The Microsoft Story
On 13 March 1986, a small software company from Redmond, Washington, sold shares to the public at $21 each and raised $61 million. Its 30-year-old co-founder, Bill Gates, kept a 45% stake worth about $350 million — and, famously, was not even in the country that day, reportedly on holiday in Australia. Four decades later, Microsoft is worth roughly $3.9 trillion. This is how two school friends from Seattle turned a hobbyist computer kit into one of the most valuable companies in history.
The Two Kids from Lakeside
Bill Gates and Paul Allen met at Lakeside School in Seattle, where both were obsessed with computers at a time when a computer filled a room and cost a fortune. Gates went to Harvard in 1973; Allen went to Washington State University but dropped out to work at Honeywell. In December 1974, Allen showed Gates a magazine cover: the Altair 8800, a build-it-yourself microcomputer kit from a tiny New Mexico firm called MITS. The machine had no software. Gates called MITS and claimed — before writing a line of code — that he and Allen had a BASIC programming language ready for it. They then built it in a frantic few weeks, Gates working from Harvard and Allen working in Boston, testing their code on a simulator because they did not own an Altair.
MITS bought it. On 4 April 1975, Gates and Allen formally founded Microsoft — short for "microcomputer software" — in Albuquerque, New Mexico, near MITS. Gates dropped out of Harvard that year. Their first product, Altair BASIC, was the company's first hit and the template for everything that followed: Microsoft did not build computers; it built the software that made other people's computers useful.
Early Struggles: Piracy, a Move, and a Departure
The early years were anything but smooth. Hobbyists copied Altair BASIC freely, and Gates wrote an angry open letter in 1976 accusing the community of theft — an early sign of his belief that software was a product with real value, not a freebie. The company survived on language interpreters for one machine after another, and in 1979 it moved back home to Bellevue, Washington, to be closer to talent and customers.
Steve Ballmer, a Harvard friend of Gates, joined in 1980 as the company's first business manager. Then came the break that changed everything. In 1980, IBM — the giant of business computing — was building its first personal computer and needed an operating system. After talks with Digital Research over its CP/M system broke down, IBM turned to Microsoft. Microsoft did not have an operating system, but it knew where to find one: Seattle Computer Products, whose programmer Tim Paterson had built 86-DOS (originally QDOS). Microsoft bought the full rights in July 1981 for a reported $50,000 — one of the great bargains in business history — and licensed it to IBM as PC-DOS, while selling its own version, MS-DOS, to other manufacturers.
That single clause — Microsoft could license MS-DOS to IBM's rivals — was the masterstroke. As IBM-compatible clones flooded the market, MS-DOS rode along on nearly all of them. In 1982, Allen was diagnosed with Hodgkin's lymphoma and left the company in 1983 (he recovered and remained a major shareholder). In 1981, the company had taken its only venture round, $1 million from Technology Venture Investors, which valued it at about $20 million — a sign of how little outside money Microsoft ever needed.
The Road to the IPO
By the mid-1980s, Microsoft was already the largest maker of PC software, thanks to MS-DOS and a growing line of applications. In November 1985 it released Windows 1.0, a graphical extension to MS-DOS that was crude beside Apple's Macintosh but pointed at the future. The company moved to its new campus in Redmond in February 1986.
Gates, by his own later account, was reluctant to go public. In a quote widely reproduced from the period, he called the IPO process "a pain, and an ongoing pain once you're public." But the number of private shareholders was approaching the threshold that would force SEC registration anyway, and Oracle's successful debut the day before Microsoft's showed the market was hungry for software stocks. The bankers lifted the price from an early $16–$20 range to $21.
On 13 March 1986, Microsoft listed on Nasdaq. Shares opened at $25.75, peaked at $29.25, and closed at $27.75 — a gain of about 32% on the day. The offering raised $61 million, and Microsoft's own retrospective notes the price touched $35.50 in over-the-counter trading. Gates kept 45%, Allen about 25%, and Ballmer about 8%. Within a few years, the IPO had created an estimated 12,000 employee millionaires — a concentration of wealth creation never seen before in American business.
After the IPO: Windows, Dominance, and a Reckoning
The IPO funded the run that made Microsoft a household name. Windows 3.0 (1990) and Windows 95 (1995) turned the PC into a mass-market product, and Microsoft Office — Word, Excel and PowerPoint, the last acquired with Forethought in 1987 — became the default toolkit of office work. By the mid-1990s, Microsoft stock had climbed more than a hundredfold from its IPO price, and nine stock splits turned one 1986 share into 288 shares.
Dominance brought a reckoning. In 1998, the US Department of Justice sued Microsoft over its bundling of Internet Explorer with Windows; the case ended in a 2001 settlement that imposed conduct restrictions but stopped short of a break-up. Gates handed the CEO job to Ballmer in 2000. The following decade was Microsoft's lost one in the eyes of investors: it missed mobile, Windows Phone failed, and the stock drifted for years.
The Nadella Reset and the AI Era
Satya Nadella, who took over as CEO in February 2014, rebuilt Microsoft around the cloud. Azure, launched in 2010, became the company's second engine, and big acquisitions followed: LinkedIn for $26.2 billion in 2016, GitHub for $7.5 billion in 2018, and Activision Blizzard for about $69 billion in 2023. In 2019 Microsoft invested in OpenAI, deepening the partnership in January 2023 with a reported $13 billion commitment, and wove AI assistants called Copilot into Windows, Office and Azure.
The market responded. Microsoft crossed a $3 trillion market value in January 2024, and by October 2026 it was worth roughly $3.9 trillion, with annual revenue above $300 billion and around 228,000 employees. Gates, who has sold down most of his stake for philanthropy, is no longer the largest individual shareholder — that distinction now sits with Ballmer among individuals — but the company he co-founded at 19 still runs on the idea he started with: software on every desk, now extended to every cloud server and AI model.
Microsoft's Journey: Milestones Timeline
| Year | Milestone |
|---|---|
| 1975 | Gates and Allen found Microsoft in Albuquerque on 4 April; Altair BASIC is the first product |
| 1979 | Company moves back to the Seattle area (Bellevue, Washington) |
| 1980 | Steve Ballmer joins; IBM asks Microsoft for a PC operating system |
| 1981 | Microsoft buys 86-DOS rights for a reported $50,000; IBM PC ships with PC-DOS, MS-DOS sells to clone makers; $1M venture round values the firm at ~$20M |
| 1983 | Paul Allen leaves the company after a Hodgkin's lymphoma diagnosis |
| 1985 | Windows 1.0 released on 20 November |
| 1986 | IPO on 13 March at $21; closes at $27.75; raises $61M; Gates's 45% stake worth ~$350M |
| 1995 | Windows 95 launches and brings PCs to the mass market |
| 1998–2001 | US antitrust case over Internet Explorer bundling ends in settlement |
| 2000 | Ballmer succeeds Gates as CEO |
| 2014 | Satya Nadella becomes CEO; cloud-first strategy begins |
| 2016–2023 | LinkedIn ($26.2B), GitHub ($7.5B) and Activision Blizzard (~$69B) acquired |
| 2023 | Deepened OpenAI partnership; Copilot AI rolled into Microsoft products |
| 2026 | Market value roughly $3.9 trillion in October 2026; revenue above $300B a year |
What the Microsoft Story Teaches
- Own the platform, not the product. MS-DOS mattered because every PC maker needed it. The IBM clause that let Microsoft license to rivals was worth more than the IBM deal itself.
- Reluctance can still be good timing. Gates did not want to go public, but listing in 1986 gave Microsoft the currency and credibility for the Windows decade.
- Wealth spreads further than founders think. The IPO's 12,000 employee millionaires became the seed capital of Seattle's tech ecosystem — including Allen's own ventures.
- Dominance is not permanent. Antitrust, missed mobile and a lost decade show that even a monopoly position needs reinvention — the Nadella cloud pivot is the textbook second act.
- One share compounds. A single $21 IPO share, through nine splits, became 288 shares — a reminder that in listed markets, time in the market beats timing it.
FAQs
When was Microsoft founded?
Microsoft was founded on 4 April 1975 in Albuquerque, New Mexico, by Bill Gates and Paul Allen.
When did Microsoft IPO and at what price?
Microsoft went public on 13 March 1986 on Nasdaq at $21 per share, raising $61 million. The stock closed its first day at $27.75.
How much was Bill Gates worth after the IPO?
Gates sold only $1.6 million of shares in the offering but retained 45% of the company, worth about $350 million at the first-day close.
What was Microsoft's first product?
Altair BASIC, a programming language for the Altair 8800 hobbyist computer, built before the company was formally founded.
How did Microsoft get MS-DOS?
Microsoft bought the rights to 86-DOS from Seattle Computer Products in 1981 for a reported $50,000, then licensed it to IBM as PC-DOS and to other PC makers as MS-DOS.
What is Microsoft worth today?
Microsoft's market value was roughly $3.9 trillion in October 2026, making it one of the world's most valuable listed companies.
Conclusion
Microsoft's journey from a $21 IPO to a near-$4 trillion company is not really a story about one clever deal, though the MS-DOS clause deserves its legend. It is a story about a platform bet made twice: first that software, not hardware, would capture the PC's value, and second — thirty years later — that the cloud, not the desktop, would capture computing's next era. The first bet made Gates a billionaire; the second saved the company from becoming a footnote. For investors, the lesson is the one the splits table tells: the biggest returns in Microsoft's history went not to the traders on IPO day, but to the holders who stayed through the antitrust trial, the lost decade and the cloud rebuild.
Disclaimer: This article is for information only and is not investment advice. Market values and share prices change daily; figures are as reported by the sources cited. Past performance is not a guide to future returns.
Sources: Microsoft's official company history (news.microsoft.com); Network World, "A look back at Microsoft's IPO"; Motley Fool IPO retrospective; History of Microsoft (Wikipedia, cross-checked against Microsoft's own account and Network World for IPO-day figures).
More from the series: Zero to IPO: The Amazon Story | Zero to IPO: The Google Story | Zero to IPO: The Apple Story