Skip to main content

Wanna invest in Google? Trust The Founders and Think Looo0ooong Term

By Arun Natarajan

Fairy tales of the Silicon Valley kind continue to come true.

Good guys (especially, if they are smart as well) do seem to finish ahead.

Are these guys for real?

These are some of the thoughts that ran through my mind when I was reading through the letter that Google's founders - Larry Page and Sergey Brin - reportedly included along with the company's filing for a $2.7 billion IPO.

Also, it made me draw parallels to the founders of India's Infosys Technologies--who have managed to defy convention (at least, in the Indian context) and pull it off magnificently.

The main focus of the letter--never mind the amusing promises of not "being evil" and "making the world a better place"--was to communicate that Google, even after it becomes public, would retain its focus on the long term. And the best way to ensure that, the founders believe, is to leave them in control.

The public Google would continue support "high-risk, high-reward projects" and not be distracted by the need to "produce smooth earnings for each quarter". "Do not be surprised if we place smaller bets in areas that seem very speculative or even strange". The founders point out that Google AdSense (the content-targeted advertising program) and Google News were prototyped during the "20 percent time" that the company allows its employees to work on pet projects.

"Many companies are under pressure to keep their earnings in line with analysts' forecasts. Therefore, they often accept smaller, but predictable, earnings rather than larger and more unpredictable returns. Sergey and I feel this is harmful, and we intend to steer in the opposite direction." The company will therefore not be providing quarterly earnings guidance. "If asked we will respectfully decline. A management team distracted by a series of short-term targets is as pointless as a dieter stepping on a scale every half hour".

In order to help the founders retain control over the direction of the company, Google will have a dual-class shareholding structure. (Under this structure, the "second class" shareholders - presumably public investors - won't have voting rights). Why? Because the founders feel "the standard structure of public ownership may jeopardize (the company's) independence and focused objectivity".

Claiming that Google bridges the media and technology industries, the founders say they "have set up a corporate structure that will make it harder for outside parties to take over or influence Google (for instance, via a hostile takeover)". They point out that such a ownership structure is common among media companies (including the publishers of The New York Times, The Washington Post and The Wall Street Journal) that "allows them to concentrate on their core, long-term interest in serious news coverage, despite fluctuations in quarterly results".

What about the many "unusual benefits"--including free meals, doctors and washing machines--that Google provides to its employees? The founders believe those have "long-term advantages" too. "Expect us to add benefits rather than pare them down over time. We believe it is easy to be penny wise and pound foolish with respect to benefits that can save employees considerable time and improve their health and productivity".

As part of the founders' goal of "making the world a better place", they are setting up The Google Foundation, which is to receive 1% of Google's equity and profits. "We hope someday this institution may eclipse Google itself in terms of overall world impact by ambitiously applying innovation and significant resources to the largest of the world's problems".

Essentially, Google's founders want to have their cake (i.e., go public to provide liquidity to investors, employees and themselves) and eat it too ("retain many of the positive aspects of being private").

Will they be able to get away with it? Given the way in which their dreams have come true in the past, I wouldn't bet against it. Nor want to.
--------------------------------------------------------------------------------------
Arun Natarajan is Editor of TSJ Media. He can be reached at arun(at)tsjmedia.com
---------------------------------------------------------------------------------------

Popular posts from this blog

PE-VC investments in Q2'23 decline 33% to $9.9 Billion

Private Equity-Venture Capital (PE-VC) investments in India during the quarter ended June 2023 (Q2'23), at $9.85 Billion across 182 deals, registered a 33% decrease compared to the same period in 2022 (which saw $14.6 Billion being invested across 371 deals). The investment amount however rose 74% compared to the immediate previous quarter (which saw $5.7 Billion being invested across 181 deals), shows data from  Venture Intelligence , a research service focused on private company financials, transactions, and their valuations. The PE-VC investment figures for the first 6 months of 2023 - at $15.5 Billion (across 363 deals) - was 50% lower compared to the same period in 2022 (which saw $31 Billion being invested across 800 deals). Q2’23 witnessed 19 mega deals ($100 M+

Chiratae, Speciale and Stride Ventures win APEX'24 Venture Capital Awards

Chiratae Ventures, Speciale Invest and Stride Ventures were awarded as among the leading Venture Capital investors in India for 2023 as part of Venture Intelligence APEX‘24 Private Equity & Venture Capital awards event in Mumbai.  The Venture Intelligence “Awards for Private Equity Excellence” (APEX) is dedicated to celebrating the best that the Indian Private Equity & Venture Capital industry has to offer. The APEX Awardees are selected based on both Self Nomination by the participating PE-VC firms and "crowd sourced" voting from the Limited Partner, PE-VC and advisory communities. (The main criteria are Return Track Record, New Fund Raises & Follow-on Funding Rounds for Portfolio Companies) VC Investor of the Year Chiratae Ventures received the Venture Capital Investor of the Year 2023 Award on the back of 10 part exits totaling $178 million via Secondary Sales during the year. Its exits included those from retail unicorn Lenskart, SaaS Startup Pixis and baby pr

Blackstone, MO Alts and InvAscent win APEX'24 Private Equity Awards

Press Release Blackstone, MO Alternates (formerly Motilal Oswal PE) and InvAscent were awarded as among the leading Private Equity and Growth Capital investors in India for 2023 as part of Venture Intelligence APEX‘24 Private Equity & Venture Capital awards event in Mumbai.  The Venture Intelligence “Awards for Private Equity Excellence” (APEX) is dedicated to celebrating the best that the Indian Private Equity & Venture Capital industry has to offer. The APEX Awardees are selected based on both Self Nomination by the participating PE-VC firms and "crowd sourced" voting from the Limited Partner, PE-VC and advisory communities. (The main criteria are Return Track Record, New Fund Raises & Follow-on Funding Rounds for Portfolio Companies) PE Investor of the Year Blackstone received the Private Equity Investor of the Year 2023 Award on the back of strong complete exits during the year: from Sona Comstar and IBS Software. Ganesh Mani and Amit Dalmia, Senior Managing D

Avendus tops League Table for Transaction Advisors to PE deals in Q1'23

Aeka Advisors and Ambit claim the No.2 & 3 slot Avendus topped the Venture Intelligence League Table for Transaction Advisor to Private Equity Transactions for Q1 2023 advising 5 deals worth $808 million. Aeka Advisors stood second having advised 3 deals worth $228 million. Ambit followed with 4 deals worth $160 million. Ernst & Young ($114 million across 4 deals) and o3 Capital ($80 million across 2 deals) completed the top five for Q1 2023. Avendus acted as advisor to ADIA’s $500 million investment in omnichannel eyewear retailer Lenskart . Aeka Advisors acted as advisor to Kreditbee’s $160 million fundraise from Advent International, Mitsubishi UFJ Financial Group (MUFG) and existing investors. Ambit advised the $104 million fundraise of Freshtohome from Mount Judi Ventures, Iron Pillar, Amazon and others. The  Venture Intelligence League Tables , the first such initiative exclusively tracking transactions involving India-based companies, are based on the value of PE

PE-VC investments fall 38% in 2023 to below $30 B

The value of investments by Private Equity - Venture Capital (PE-VC) firms in India fell by 38% to less than $30 Billion in 2023. PE-VC firms invested $29.7 Billion (across 756 deals) in Indian companies in 2023, compared to $47.6 Billion (across 1,362 deals) in the previous year, reports Venture Intelligenc e, a research service focused on private company financials, transactions, and their valuations. (Note: These figures exclude PE investments in Real Estate).                                                                                                                                                                      2023 witnessed 67 mega deals ($100 M+ rounds) worth $21.2 Billion, compared to 112 such investments worth $31.8 Billion in 2022. The $2.4 Billion investment in Manipal Hospitals by Temasek (which gained majority control) and TPG Capital was the largest PE-VC investment in 2023. This was followed by the $1.35 Billion buyout of education loans focused HDFC Credila