The Ten-Million-Dollar Bet That Became Forty Billion

In 1986, Steve Jobs purchased a small computer-graphics division of Lucasfilm for ten million dollars and renamed it Pixar Animation Studios. The transaction was, at the time, a curious sidetrack for Jobs, who had been forced out of Apple a year earlier and was building his next company, NeXT Computer. Pixar was unprofitable. The animation business was small. The computer-graphics hardware Pixar was selling produced little revenue. Jobs personally subsidized the company's operations through approximately the next decade.

In 1995, Pixar released Toy Story, the first full-length feature film animated entirely by computer. The film grossed approximately three hundred and seventy-five million dollars at the global box office and established Pixar as the leading studio in a new category of feature-length computer animation. The Pixar IPO, which followed within months of Toy Story's release, valued the company at approximately one and a half billion dollars. Jobs, by then back at Apple in an advisory capacity that would shortly become a return as chief executive, became a billionaire on his Pixar holdings — substantially before Apple's subsequent recovery would make him a billionaire on Apple as well.

In 2006, Disney acquired Pixar for approximately seven and a half billion dollars in stock. Jobs, as the largest individual Pixar shareholder, received Disney stock that made him the largest individual shareholder of the Disney corporation — a position he retained until his death in 2011. The Disney stock, deployed strategically across Apple-Disney partnership negotiations during the iTunes-music and iPad-content periods, also gave Jobs unusual influence over the consumer-content landscape during the critical early years of digital entertainment distribution.

The Sequence of Capital. What the Pixar story illustrated, more cleanly than perhaps any other Steve Jobs investment, was the cumulative effect of patient capital deployed against a technology bet that took longer to mature than its underlying participants anticipated. The ten-million-dollar purchase in 1986 produced, eventually, approximately a forty-billion-dollar return through the Disney transaction and subsequent stock appreciation — a roughly four-thousand-fold return over twenty years. The intervening years had included substantial personal financial commitment from Jobs, including periods when Pixar's commercial prospects were sufficiently dim that he had reportedly considered selling the company. He did not.

The Lesson Hidden in the Animation. What the case demonstrates is that long-duration technology bets, sustained through patient capital and credible operational leadership, can produce returns that conventional venture capital cannot wait for. The standard venture capital timeline is approximately seven to ten years. Pixar took nineteen years from acquisition to the Disney transaction. The capital required to sustain the company through the unprofitable years was, in conventional venture-capital terms, larger than any single fund could justify. Only an unusually patient principal, willing to subsidize personally, could fund the timeline.

Jobs returned to Apple in 1997, transformed the company through the iPod and iPhone introductions, and produced what is now the largest company in the world by market capitalization. The Pixar bet, made eleven years before that return, is sometimes overlooked in narrative accounts of his career. It was, in commercial terms, comparable in importance — and in some respects, formative for the operational lessons he would deploy at Apple. The animation lesson, taught patiently through nineteen years of capital and commitment, produced both a remarkable family of films and a remarkable accumulation of personal wealth that helped fund the rest of the career.