What Did Steve Jobs Sell to Raise The Seed Money To Start Apple Computers?

 

How did Steve Jobs and Steve Wozniak finance their brand new startup called Apple?  No, it was not cash from angel investors or venture capital.

How apple computer was financed

I’m in the middle of reading the Steve Jobs biography by Walter Isaacson, and just came across that tidbit.

Owner Investments

To buy supplies to create the first products for sale, Wozniak sold his HP 65 Calculator for $500 and Jobs sold his VW bus for $750.  With that working capital, a design for the product  and a plan to sell units for $50 each, they expected to clear $700 after costs.  On April 1st 1976 they drew up a partnership agreement for Apple Computer.

The audience at the Homebrew Computer club was not impressed when the Jobs and Wozniak presented their first printed circuit boards, but one person stayed afterwards to talk for a while. Paul Terrell had three computer stores and visions of building a national chain.

30 Day Credit Using a Purchase Order

Jobs followed up with Terrell the next day.  But Terrell wanted assembled computers, not printed circuit boards, to sell to end users, not tinkerers. He was willing to pay $500 each on delivery.

The new company needed $15,000 of parts to fill the order. Atari would only sell the parts for cash up front.

A bank turned the two scruffy guys down for a loan and another computer parts store declined an equity stake in the new venture.  “Finally Jobs was able to convince the manager of Cramer Electronics to call Paul Terrell to confirm that he had really committed to a $25,000 order,” says Isaacson.  Terrell confirmed it and then Jobs got the parts on 30 days credit.  (Learn how purchase order financing works here.)

When after 30 days the computers were delivered and paid for, “Apple was on the verge of being profitable.”

In January 1977, Apple was valued at $5,309.  By the end of December 1980, it went public for $1.79 billion.  Yes, billion.

And yes, you too can bootstrap your business.

Comment by SCORE Mentor Mark Lieberman

 

“I read the above with both interest and nostalgia. Interest because it is the sort of Horatio Alger story we all love. Nostalgia because anything like this story would fail miserably today.

“Banks would never lend a startup anything against a purchase order. It isn’t worth even asking. They want 2 years of business history before they talk to you, end of sentence. Second, even if a bank were so inclined, a phone confirmation would never count as a contract.  In fact, if someone called and presented a postdated contract, which is the best that could happen in this case, it’s at least possible that the bank would mention fraud, even if they didn’t prosecute.  Finally, can you imagine a bank making a loan to a startup, any startup, in under 90 days today?

“Crowdfunding anyone?”

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