[FoRK] NYTimes.com Article: A Quirky Brilliance vs. the Dreams of Venture Capitalists

khare at alumni.caltech.edu khare at alumni.caltech.edu
Mon Apr 26 14:24:39 PDT 2004

The article below from NYTimes.com 
has been sent to you by khare at alumni.caltech.edu.

Say goodbye to the space elevators :-)

Seriously, the re-merge must have been the moment of decision. It could have kept hiving off for quite a while, I suspect... still, even the corporate structure is a "nice hack" :-)


khare at alumni.caltech.edu

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A Quirky Brilliance vs. the Dreams of Venture Capitalists

April 26, 2004


Not every company would coyly spurn billions of dollars and
front-page attention. Yet Google seems intent on staying
private as long as possible despite the clamoring of
investors to own a piece of a company that has become
synonymous with instant information on the Web. 

There are many good reasons to avoid a public stock
offering and the close scrutiny it brings. Indeed, this
week the scrutiny will intensify as the company approaches
a deadline to file financial disclosures. But in Google's
case, its hesitancy up to this point has been a symptom of
a long-running battle for control between its two brainy,
headstrong founders and the powerful, strong-willed
financiers who gave them the money to turn their graduate
school project into one of the world's leading brands,
according to several people in and outside Google. 

The two founders, Larry Page and Sergey Brin, who own
perhaps 40 percent of the company, could become
billionaires several times over if they take it public. But
according to people who have dealt with them, they are less
interested in cashing out than in maintaining their ability
to direct Google's ambitious strategy and idiosyncratic

A lawyer who has worked for Google and declined to be
identified out of concern over client confidentiality,
remarked, "There are a lot of quirky demands that are made
over there that are not made by traditional financial
market considerations but are more about control of the

For the venture capitalists - John Doerr of Kleiner Perkins
Caufield & Byers and Michael Moritz of Sequoia Capital
Partners - the motives are more clearly financial. They
have benefited by agreeing to the founders' request to
delay a stock offering while the company and its perceived
market value grew rapidly. But now, with competition from
Microsoft on the distant horizon, it may be an ideal time
to cash in on the investment. 

Kleiner Perkins and Sequoia put up $25 million in June
1999, buying about 25 percent of the company, according to
people involved in the transaction. If a publicly traded
Google became worth, say, $20 billion, that would give the
investors an 800-fold return on their money, making it one
of the best investments in history. And since many of their
other investments made at the peak of the Internet boom
have collapsed, the venture capitalists need a big return
from Google all the more. 

Attention is being focused this week on Google because
Thursday is the deadline for it to file financial
disclosure documents under Securities and Exchange
Commission rules. It could meet those requirements by
filing papers for a public stock offering - what the
venture capitalists are said to favor. Or it could simply
file the disclosure papers, perhaps along with a statement
that it will begin eventually to move toward a public
offering. A person close to the company said last week that
it would proceed with this slower course. 

Executives at Kleiner Perkins and Sequoia referred calls
for comment to Google, which declined to speak about any
matters related to a prospective public offering. 

But other executives who have worked with Mr. Doerr and Mr.
Moritz said they would be surprised if the financiers were
not pushing very strongly for a quick public offering. 

"Venture capitalists want to cash out," said George Bell,
the chief executive of Upromise and former chief executive
of Excite at Home, two companies backed by Kleiner Perkins.
"This is life. People have to deal with the fact that if
you start a company and ask a venture capitalist to take a
risk, they are going to want to secure a financial outcome
that is highly desirable." 

Mr. Bell said he hoped to fend off that pressure and keep
Upromise, a college savings and marketing company, private
as long as possible. "It is a big distraction to be
public," he said, noting that it costs millions of dollars
a year to comply with accounting and disclosure rules and
to provide liability insurance to officers and directors
against shareholder suits. 

Of course, Google's current value stems from the founders'
willingness to rethink methods of how to search Web pages,
at a time when many Internet experts thought that problem
had been solved. And the company now appears to be looking
at extending its business in ambitious ways, like a new
e-mail service for consumers. But the ambitions of the
Google founders wander further afield. They have talked
about building space transporters and implanting chips in
people's heads that can provide them with information as
they think. 

A public offering would put these sorts of dreams in a very
different light. And it is not hard to imagine Google's
share price dropping some day after a comment by Mr. Brin
or Mr. Page led investors to worry that too much money was
being diverted to lunar-rover design or some other project
unlikely to increase the next quarter's earnings. 

Since Google is growing rapidly and is profitable, there is
no immediate business need for them to sell shares. 

"They have so much cash in the bank, they don't need go
public," said Andy Bechtolsheim, a co-founder of Sun
Microsystems who was Google's first investor. Mr.
Bechtolsheim, who is not involved in Google's management,
said there is a lot of pressure on Google's founders to go

"But it's a hard decision," he said. "It's nicer to live
life as a private company, as opposed to living life under
the microscope." 

In public, Google executives have flippantly played down
the importance of selling shares. In January, The Times of
London reported that Eric Schmidt, Google's chief
executive, told a closed-door meeting that "an I.P.O. is
not on my agenda right now." 

And in March 2003, Mr. Brin told a gathering of technology
executives that Google was avoiding a pubic offering
because "that's a lot of work, and I'm lazy." 

He added that an offering "requires filling out a lot of

"The S1, in particular, seems like a really long one," he
said, referring to the main document that companies are
required to file disclosing their finances and other
information to prospective investors. 

Google has hardly been lazy working to manage the timing of
an eventual offering. Early on, it split itself into two
companies, Google Inc. and Google Technologies, so that
each would have fewer than 500 employees, according to a
person who had been close to Google. That was important
because the S.E.C. requires companies with 500 shareholders
and assets greater than $10 million to file financial
statements and most of the other information they would
have to disclose in a public share offering. 

Early in 2003, the two companies were merged, in effect
setting the date of April 29, 2004, as the deadline for
Google to make the required disclosure. (The law requires a
public filing 120 days after the close of a company's
fiscal year, in this case April 29.) 

In the meantime, the company has also been working hard to
make sure that it could go public if it wanted to. Earlier
in the year, it completed an audit meant to verify its
compliance with the Sarbanes-Oxley Act of 2002, a law
intended to enhance disclosure and oversight at public
companies. And now Google's corporate Web site lists a job
for a manager for Sarbanes-Oxley compliance, a job title
that seems inherently unnecessary at private businesses. 

Ultimately, the biggest pressure to go public may be from
Google's employees. The company is profitable and the
founders could receive millions of dollars a year if it
simply paid a regular dividend. But for many engineers and
executives who have earned stock options in the last few
years, a public offering is all that stands between them
and a sports car, a beach house or a year in Tibet. 

"Obviously in the end, there's a lot of people who want a
liquidity event," Mr. Bechtolsheim said, using the
venture-capital jargon for a deal that allows stock to be
converted to cash. "It's a trade-off." 



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