A Billion Dollar Knock On The Door

Hello! Welcome to the fifth edition of Deep Pockets! Thank you for being here!

The saying “opportunity knocks” is probably a bit dated. A more modern take on the phrase might be “opportunity texted” or “opportunity DM’d.” Has opportunity ever LITERALLY “knocked,” and the result was a massive fortune?

YES.

In 1998, opportunity knocked on a college professor’s door. That knock would eventually make this professor one of the 150 richest people in the world…

DEEP DIVE: Sometimes opportunity literally knocks…

David Cheriton was born in Vancouver, Canada, in 1951. He was the third of six children born to two engineers who grew up scarred by the Great Depression. David excelled in math but actually wanted nothing to do with STEM. Much to his parents’ dismay, he wanted to dedicate his life to the study of classical guitar. To make that passion a reality, he enrolled at the University of Alberta under the guise of studying math. But his real plan was to transfer to the school’s music department as soon as possible.

Unfortunately, David’s musical dreams were shut down when music department rejected his application.

Dejected, he left the University of Alberta. In 1973 he enrolled at the University of British Columbia, where he ultimately fell in love with a different kind of instrument:

Computers.

After undergrad, he earned a PhD in Computer Science from the University of Waterloo. He then returned to the University of British Columbia, where he taught for three years.

In 1982, he took a teaching job at Stanford.

In his first year at Stanford, one of David’s PhD students was an unusual German kid named Andreas Von Bechtolsheim. Aka Andy.

Andy famously never attended any classes, instead opting to spend his time on personal interests and projects. One of those projects was networking Stanford’s computer workstations to create a very early “intranet” where the computers could interact in what today would seem primitive but at the time was revolutionary. He called it the “Stanford University Network,” which soon was shortened to “the SUN.”

Andy dropped out of Stanford before the 1982 term ended and founded a company. He named the company “Sun Microsystems.”

Four years later, Sun Microsystems went public. In 1995 Andy quit Sun so he could launch a new company called Granite Systems. His co-founder at Granite?

David Cheriton.

David didn’t actually leave Stanford for Granite. He acted more as a founding advisor. In exchange, he received 10% of the company.

In 1996, just a year after it was founded, Granite was acquired by Cisco for $220 million.

Andy’s 60% stake was worth $132 million, pre-tax.

David’s 10% was worth $22 million, pre-tax.

If that’s where this story ended, it might be impressive enough to warrant a Deep Pockets Deep Dive: Stanford professor makes millions off VC investment!!! But David’s real opportunity had not yet knocked.

Even with millions of dollars in the bank, David didn’t leave his Stanford teaching job. He kept the same office. He stayed in the same modest Palo Alto house he bought in the 1980s. He allegedly kept cutting his own hair. And he continued driving the same 1986 Volkswagen Vanagon.

The professor who became a millionaire by investing in his former student’s company made David a legend around Stanford, particularly within the Computer Science department where students had recently become enthralled by a nascent technology called the World Wide Web.

Those two students were:

Larry Page and Sergey Brin.

Larry and Sergey had spent the better part of 1997-1998 developing a novel algorithm for organizing all of the pages that existed on the entire World Wide Web. At the time, it was around 24 million pages (today, there are over 50 billion web pages).

In 1998, they put the final touches on a co-authored dissertation titled:

“The Anatomy of a Large-Scale Hypertextual Web Search Engine.”

Larry and Sergey had actually attempted to license or even sell their algorithm to the existing search engines of the time, but they were universally rejected. Instead of giving up, they decided to start their own search engine. That would require some money.

One extremely fateful evening in 1998, Larry Page and Sergey Brin knocked on David Cheriton's door. Opportunity was literally knocking in the form of two 24-year-old grad students with an idea for a business. Two grad students who David never actually taught btw!

David invited Andy Bechtolsheim to join the meeting.

After a 10-minute pitch, Andy and David both wrote $100,000 checks on the spot. And with those checks, David and Andy became the very first investors in a company called…

Google.

I probably don’t need to tell you what happened to Google next. Today, the company has a market cap north of $2 trillion, which makes it one of the five most valuable companies in history.

So how rich did that investment make David? Well, even after Google proved to be the home run of all home runs, he wasn’t actually done investing and founding companies

David went on to invest in dozens of more startup ideas, several of which came from other Stanford students. And in 2004, he and Andy Bechtolsheim co-founded a company called Arista Networks. Arista is a publicly traded company with annual revenues north of $6 billion and a market cap of roughly $100 billion. David owns 4% of the company. Andy owns 15%.

Add it all up and today David Cheriton is worth…

.

.

.

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 $15 BILLION

That makes David one of the 150 richest people on the planet.

He is known as the richest professor in the world because get this… HE STILL HASN’T LEFT HIS STANFORD TEACHING JOB!

Even with a $15 billion net worth, David maintains the same office he’s had for decades, a campus phone number, a full-time secretary, and an active @stanford.edu email address. He did finally upgrade his vehicle, though. Today, he drives a 2012 Honda Odyssey. And though he could easily afford a $100 million estate in nearby Atherton or Woodside, he still lives in the same relatively modest off-campus house he bought in the 1980s. Which I get. Why would you give up the home where opportunity literally knocked, and the result was a $15 billion net worth? I would enshrine the front door.

Today Andy Bechtolsheim is worth $20 billion. As we mentioned, he owns 15% of Arista vs. David’s 4%. Also, in 2009, Oracle acquired Sun Microsystems for $7.4 billion.

As for those 24-year-old PhD students, today Larry and Sergey are worth $150 billion and $145 billion, respectively. Larry is the sixth richest person on the planet. Sergey is #8.

FINAL WORD

In the next newsletter, I’m going to cover perhaps the most unlikely person to ever amass an unbelievable fortune - proof that “anyone” truly can do it.

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