Buying low and selling high is one of the maxims of any financial operation if you want do well in life. It’s the advice likely followed by two immigrant friends from Asia who met playing basketball in Los Angeles.
The story of these two friends is one of the most bizarre and fortunate in the technological business field, since they managed to sell their company for 1.5 billion, and then buy it back for 450 million and turn it into an empire of 150,000 million dollars. Its history is that of one of the best-known RAM and storage device companies since the late 80s: Kingston Technology.
Two immigrants and the worst Monday in history
John Tu came to Los Angeles from China in the 1970s. David Sun took the same route, but from Taiwan. They were both engineers and were looking for their big break in California. By the whims of fate, they both ended up playing basketball on the same basketball court in Los Angeles in the 80s. Everything else arose from that friendship.
His first business was Camintonn, a memory-related components company used by personal computers that were beginning to make the leap from laboratories and electronics hobby clubs to offices and homes, driven by promising young people like Bill Gates or Steve Jobs.
After a few years of success and growth, Tu and Sun sold Camintonn in 1986 to AST Research for six million dollars.
With that money in their pockets, the future seemed like a bed of roses for the two friends, but their joy was short-lived. The feared Black Monday The October 1987 crash on Wall Street caused a good part of his savings to disappear in one fell swoop. They were left with almost nothing.
However, instead of looking for work in a company in the flourishing technology market of the time, they began their adventure as entrepreneurs again. “I told him: ‘You make something and I’ll sell it, like last time,'” Tu said. in an interview for Fortune.
John Tu and David Sun, co-founders of Kingston Technology
That same year they founded Kensington, a company with a name that seemed elegant and sophisticated, but another company had beaten them to it and registered it. So as they were fans of the folk group The Kingston Triothey chose to rename their company Kingston Technology and launched it in a garage in Fountain Valley, California.
How much does current technology owe to California garages!
From being born in a garage to being worth 1.5 billion
To the contrary to Samsung or other brands, Kingston did not manufacture its own memory chips, but rather bought components from large manufacturers and turned them into products that people use: memory modules for computers, pen drives, flash cards, SSD disks. It was a model without great aspirations, but it worked with a precision that few could match. In fact, it is the same business model that it maintains today.
By August 1996, the company was already valued at more than $1.8 billion, and SoftBank acquired 80% of Kingston for $1.5 billion.
Masayoshi Son’s Japanese giant was then in the midst of a technological buying spree and Kingston was exactly the type of company it was looking for: profitable, well-positioned and growing.
That is, with the acquisition of Softbank, Tu and Sun continued to be a decisive part of the company’s operations thanks to the 10% of the company that each one retained, and they also pocketed 700 million dollars each.
Yes, I was not wrong: 700 million for each one, because the founders distributed 100 million dollars in extraordinary bonuses for your employees as a sample of thanks for your work.
The deal was perfect because both employees and founders had put a lot of money in their pockets, but they continued working in the same position and with the same conditions as up to that date. What a bargain! …but there was still room for further improvement.
Sell high, buy low
Three years later, in 1999, SoftBank came knocking on Kingston’s door again. The dotcom bubble was at its highest moment and Masayoshi Son wanted to recover liquidity to invest in the effervescent internet companies.
Kingston was still a good business, but it was not the type of hypervolatile asset that Softbank was looking for at that time, so it offered them to recover the same 80% that it had bought from them for 1.5 billion. However, the new price was very different: $450 million.
We guess holding back their laughter, Sun and Tu said yes. Obviously. In fact, they were even generous to Softbank.
Just like you counted to Fortunein 1996 SoftBank had paid part of the purchase with a promissory note of 300 million that it had to pay in two years, but the investment bank did not fulfill its part and was late in that payment. Faced with such a breach, the founders could have recovered the company by contract in 1998. But they did not do so. They forgave their debt. “SoftBank was shocked,” Tu said.
When Masayoshi Son wanted to sell Kingston, his first option was to sell it to them because it was his way of returning the favor they had done a year before.
Thus, starting in 1999, Sun and Tu once again owned 100% of Kingston: 50% for each one.
According to ForbesKingston Technology had a turnover of about $14.4 billion a year and ranked 28th on the list of the largest private companies in the United States. Its value is estimated at 150,000 million thanks to the memory shortage.
A peculiarity of the company is that, despite being one of the most consolidated technology companies, it is still not listed on the stock market. No funds. Without external investors. Just the two friends who met on a court in Los Angeles almost fifty years ago and had two strokes of luck in their career that allowed them to become millionaires without losing control of the company they founded.
Image | Kingston Technology
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