Epic is not EXACTly the Microsoft of Madison

Epic is not Madison’s Microsoft; Exact Sciences is, says WARF executive.
person working with containers at Exact Sciences
Courtesy of Exact Sciences
Person working at Exact Sciences Laboratories.

Epic Systems Corp.’s relationship to the Madison region is frequently compared to Microsoft’s to the Seattle region. This is true only in broad strokes. What the comparison misses is that Microsoft’s economic impact on its community is considerably greater than Epic’s impact on Madison.

That stems largely from the fact that Microsoft is a publicly traded company that has created far more wealth than privately owned Epic.

In the company’s early days, Microsoft co-founder Bill Gates offered employees stock options that proved fabulously lucrative. They allowed employees to buy stock at a fixed price for a period of time when the share value was soaring. An estimated 10,000-plus Microsoft millionaires were created, according to a 2003 Washington Post story that also reported that between 1995 and 2002 upwards of $30 billion in stock options were executed in the Seattle area.

The ranks of the suddenly rich included not just software engineers and corporate chieftains, but secretaries and humble Microsoft “gofers.” The golden era lasted until Microsoft stock tumbled during a lengthy fallow period that did not end until Gates’ successors repositioned the company.

I checked in with Erik Iverson who lived in Seattle and worked for the Bill & Melinda Gates Foundation before coming to the Madison area in 2016 to run the University of Wisconsin–Madison’s patenting and licensing arm, the Wisconsin Alumni Research Foundation. Iverson has vivid impressions of Seattle’s gold rush days.

The newbie Microsoft millionaires “took their money and invested in venture funds, started their own businesses and invented stuff,” he says. “There was a continual supply of millionaires pumped out of Redmond [Microsoft’s suburban home] who did their own things. The philanthropic effect was enormous, too.”

Among the startup beneficiaries of Microsoft-related money and talent: Amazon, Costco, Expedia and Adobe. (Critics would point out that the explosion of new wealth also sent housing costs into the stratosphere, exacerbated homelessness and destabilized Seattle in other ways.)

When Iverson arrived in Madison, he too thought of Epic as Madison’s Microsoft. A few years later, after learning what Exact Sciences, headed by CEO Kevin Conroy, was doing for job training with the Urban League of Greater Madison and the stock options he was offering all of his staff, “it dawned on me that Exact Sciences was our Microsoft.”

Assuming the economy rebounds from COVID-19 and Exact regains its arc of growth, Iverson expects to see a “marked difference” in the Madison area economy in four years or so when those Exact options are vested, cashed in and the money is invested locally, as it was in Seattle.

Judy Faulkner, meanwhile, has open disdain for what she sees as Wall Street’s short-term focus on quarterly dividends. Epic has its own stock plan for employees. Mitch DeWitt of Walkner Condon Financial Advisors, whose clients include Epic employees, says he has seen three primary variations.

They include stock offered for sale at a discounted price (Epic also offers low-interest loans to facilitate purchases); outright stock grants to key employees; and “stock appreciation rights,” in which employees don’t actually own the shares but profit from their gain in value. (An Epic spokeswoman denies the stock is offered at a discounted price.)

Private appraisal rather than the closing bell of Wall Street’s trading day determines stock value. Various strings are attached to the Epic plans, says DeWitt, including a vesting schedule. Stockholders who leave Epic are subject to a lengthened noncompete period (for two years, according to an Epic employee who has seen the document and who requested anonymity). Epic reserves the right to buy back the stock of departing employees.

Iverson praises Epic as “a smart company that got big.” He’s only met Faulkner once at a social event — perhaps not surprising considering how insular the Epic operation is. Still, it’s a small town and Iverson is a key player in the local tech scene just as Faulkner is.

When I asked Iverson if WARF and Epic were collaborating, he said no. “They’re not a licensee of ours. We don’t have any projects with them.” He added that he didn’t see that as a negative or a positive. “It’s just what it is.”