[FoRK] NYTimes.com Article: Google Goes Public? The Rich Get Richer

khare at alumni.caltech.edu khare at alumni.caltech.edu
Mon Apr 26 14:32:48 PDT 2004


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


The lede is a bit misleading -- it's a list of holders of Conway's Angel Investors, and probably some KP/Sequoia limiteds.

Rohit

khare at alumni.caltech.edu


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Google Goes Public? The Rich Get Richer

April 25, 2004
 By GARY RIVLIN 



 

Tiger Woods has his small stake. So do Shaquille O'Neal,
Henry A. Kissinger and Arnold Schwarzenegger. All can be
counted among that small club of people lucky enough to own
a sliver of Google, one of the hottest companies in Silicon
Valley and what could be the hottest deal on Wall Street
this year. 

Michael S. Ovitz, once a top Hollywood agent, pulled
strings in an effort to enter a pool that was being offered
to a group of rich investors and would eventually own a
small piece of Google. But that was in the late 1990's, and
apparently his star was already fading. Mr. Ovitz was
turned away. 

The question of if and when Google, the world's most
popular search engine, might finally proceed with an
initial offering of shares to the public has captivated
Silicon Valley in recent days. That is because it nears a
deadline this week to provide a financial disclosure
document required under the 1934 securities law. 

The company has not declared its intentions, but Google is
the most anticipated public offering since the dot-com
bubble burst four years ago. 

People speculate. People dream. And if the numbers are to
be believed, people will drool. The current prediction is
that Google, if it decides to sell shares to investors this
year, would probably end up with a market value of $20
billion to $25 billion by the end of its first day as a
publicly traded company. 

A $25 billion market value would instantly make Google
worth more than Lockheed Martin, the big military
contractor; Federal Express, the package delivery service;
or Nike, the sports clothing maker. 

As a great many people have learned the hard way in recent
years, things don't always happen as the experts predict,
especially when a company is involved in the high-risk
realm of technology. 

"It's bound to happen," Andy Bechtolsheim, who was the
first person outside the company to invest in Google, said
of the long-awaited public offering. Mr. Bechtolsheim, a
founder of Sun Microsystems, said he owns a little more
than 1 percent of Google. Assuming a huge opening day, the
$200,000 he invested in Google in 1998 could be worth at
least $300 million. Not everyone would fare as well. Many
own a small stake in Google through an investment syndicate
that included lots of Internet failures, and would stand to
make only a modest profit on their total investment, if
anything. 

The list of those expected to profit handsomely if Google
proceeds with an initial public offering certainly includes
the usual suspects. Start with the company's two young
founders, Sergey Brin and Larry Page, who started Google as
graduate students at Stanford and are known affectionately
as "the boys" among Silicon Valley insiders. 

Mr. Brin and Mr. Page, now in their early 30's, together
own an estimated one-third to one half of Google, depending
on which insider's number deserves credence. 

"In a way, it doesn't make a difference whether the boys
own a third of the company or half," said a Silicon Valley
venture capitalist who spoke on the condition he not be
identified because Google is a secretive company. "We're
all living in a Google world now. You can safely say," he
said, that "both of them will be worth in the many
billions." 

Kleiner Perkins Caufield & Byers and Sequoia Capital, the
two venture capital firms that invested in Google in June
1999, just as Google was becoming a daily tool of the
digital elite, each own 11 percent to 14 percent of the
company, several Silicon Valley venture capitalists say. 

The list of institutions that stand to make a small fortune
from Google includes two of its potential rivals, America
Online, now part of Time Warner, and Yahoo. 

"People made fun of Yahoo for its licensing deal," said an
executive at a search-related start-up company that is a
partner with Yahoo and Google, who insisted on anonymity to
avoid spoiling his relationships. "They helped to create a
big competitor. But this deal that hurts them strategically
will make the company a lot of money." 

Yahoo invested $10 million several years ago, when Google
was the search engine powering Yahoo's operations on its
Web portal. Yahoo owns a small stake, a person who has seen
the terms of the deal said. 

Under a different deal struck in 2002, America Online has
the right to buy nearly two million shares of Google for
roughly $22 million, according to Time Warner. 

A list of the others who stand to be enriched should Google
go public seems to prove that the rich get richer. It reads
like a "Who's Who" of Silicon Valley insiders, including
Frank P. Quattrone, the former investment banker now on
trial in Manhattan on charges of obstruction of justice and
witness tampering. 

It includes some of Silicon Valley's greatest
entrepreneurial successes, including Marc Andreessen, the
founder of Netscape; Pierre M. Omidyar, a founder of eBay;
Shawn Fanning, the creator of Napster; and Bill Joy, the
software innovator who recently left Sun Microsystems. 

Stanford, one of the country's richest universities, also
stands to add considerably to its bottom line. Mr. Brin and
Mr. Page, who met in 1995 at a party for incoming computer
science graduate students, worked together on a
university-funded data-mining project. During that
collaboration, the pair invented the search technology that
would eventually be Google's core technology. 

"The university owns the technology," said Katharine Ku,
the director of Stanford's Office of Technology Licensing.
"We license it to Google, which back then was just these
two kids. They pay Stanford royalties annually. We also
took a bit of stock in the deal." 

Under the terms of that deal, the royalties are evenly
split three ways among Mr. Brin and Mr. Page, the computer
science department and the university's engineering school.
That deal was struck in 1996. 

For two years, the university tried to license the deal to
existing search companies; at least one company "offered a
significant amount of money" to buy Google, but in 1998
"the two decided to start their own company." 

Ms. Ku declined to share the terms of the licensing deal,
which is still in effect, or to speculate on the potential
value of the university's equity stake. 

David R. Cheriton, a computer science professor at
Stanford, introduced Mr. Bechtolsheim to Google's founders.
In August 1998, the four sat on the porch of Mr. Cheriton's
Palo Alto home, where Mr. Page and Mr. Brin tried to
demonstrate their product for Mr. Bechtolsheim. Before the
pair could finish, he had decided to write them the first
of two $100,000 checks. 

"They needed money to pay the lawyers to incorporate the
company," he said. "And I wanted to make sure I was part of
this company." 

The founders raised roughly $1 million that September,
including Mr. Bechtolsheim's investment. Other early
investors include Mr. Cheriton and Ram Shriram, a former
Netscape and Amazon executive. 

"Basically they needed money to buy the machines so they
could prove out the concept," Mr. Bechtolsheim said. 

The company closed on a second round of financing in June
1999. By then, much of Silicon Valley's elite wanted a
piece of Google, which had become the default search engine
of choice among the area's digerati. 

That is when Ron Conway and Bob Bozeman, two partners in a
venture fund called Angel Investors, discovered Google -
and, according to an investors list prepared by Angel
Investors, brought along many famous people, including Mr.
Woods and Mr. Kissinger, and some of the Valley's
best-connected entrepreneurs and financiers, among them at
least five billionaires. 

A former executive at the personal computer maker Altos
Computer Systems, Mr. Conway had been investing his money
in Internet start-ups. Enough wealthy friends asked him if
they could piggyback on his investments that in late 1998
he created Angel Investors as an Internet index fund that
would invest in an array of Web-related start-ups. That
year, under the title Angel-1, he raised $30 million; the
next year, under Angel-2, $150 million, Ultimately Mr.
Conway raised money from more than 500 people, only a few
of whom he had known before entering a business
relationship. 

Anyone who invested in Angel-1 or Angel-2 owns a small
stake in Google, though those in Angel-1 own shares
obtained at a much better price (roughly 50 cents a share,
compared with $2.34 a share), given that the investments
were made six months part. 

"If I decide I want something to happen and I'm very
motivated," Mr. Conway said in 2001. "I try real hard to
make it happen." 

Mr. Conway, Mr. Bozeman said, is "the premier elbow guy in
the business." Mr. Conway declined to comment for this
article. 

Based solely on the Google deal, Angel-1 should "make each
of us several times our original investment," an investor
in both funds said. This investor, who receives updates
from Angel Investors, insisted on anonymity because of a
confidentiality agreement. 

Most of the companies in which Mr. Conway and Mr. Bozeman
invested with money raised in Angel-2 in 1999 and 2000 have
gone out of business. But such is the potential power of
Google that, though Angel-2 includes nearly 200 worthless
investments, an investor said, "we might actually get our
investment back, if not make a little extra." 

The typical Silicon Valley start-up endures several rounds
of venture financing before reaching profitability, and no
longer needing additional outside money. With each round
the founders' shares are further diluted, until they end up
owning only a small share of the company. 

Yet Google raised only one round of venture capital. In
June, Kleiner Perkins and Sequoia, two of the Valley's most
highly prized venture capitalists, bought a total of
roughly one-quarter of the company, according to financial
documents spelling out the terms of the deal. There was the
deal with Yahoo, and the hiring of a new chief executive,
Eric E. Schmidt, in 2001, who undoubtedly received a
handsome stock package - yet one rival venture capitalist
marvels at the size of the equity stake the two founders
retained. 

"That's what makes this deal so unusual," the venture
capitalist said. "There's been no almost no dilution of
financing. The founders did a first round, they basically
did a deal with the C.E.O., there's the deal with Yahoo,
and that's it." 

Andrew Anker, an entrepreneur and former venture
capitalist, said: "This is the deal of the century as far
as I'm concerned. No matter how you cut it, this will make
a lot of people very happy." 

http://www.nytimes.com/2004/04/25/technology/25RICH.html?ex=1084015168&ei=1&en=bedc67062ca66673


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