August 19, 2004

Is "Doerr" pronounced "D'oh"?

Google, with its "don't be evil" philosophy and fundamental mistrust of the way that Wall Street pushes technology companies to concentrate on quarterly earnings at the expense of long-term strategic decisions, never really wanted to go public. But it had venture-capital investors, and when you have VC investors, they're going to want to exit at some point. And so it happened that Google was forced to go public.

And then the price was lower than the VCs wanted, and then the VCs decided – well, here's the Times:

Two of Google's big early investors, the storied Silicon Valley venture capital firms Kleiner Perkins Caufield & Byers and Sequoia Capital, decided to withdraw their combined 4.5 million shares from the auction early yesterday, betting they can get a better price at some point in the future.

At $85 a share, Google is still worth $23 billion, which is hardly chump change – it's twice the market cap of Apple, for instance, or Halliburton, for that matter, and roughly the same as Ford Motor. If that's not good enough for John Doerr, he shouldn't have forced Page and Brin into going public in the first place. I really hope the shares only trade down from here, and that he'll rue the day he failed to get out at $85. He's inflicted all the miseries associated with running a public corporation, for nothing.

Posted by Felix at 03:02 AM GMT

the usual caveat of anything written after midnight being denied in the morning applies here, but wasn't the reason Google went public now that the SEC required a private company of their size to disclose so much anyway, the consensus was if they were going to lose so much "privacy", they might as well benefit from publicly held capital markets?

Posted by: mike on August 19, 2004 04:08 AM

Are you sure about that? I don't think private companies without public debt have any reporting obligations to the SEC at all, unless they are securities dealers or have some other regulated role in the securities markets.

I could be wrong - it's been a long time since my Series 7.

Posted by: Sterling on August 19, 2004 04:39 AM

You're both right. Google had to file a Form 10 with the SEC -- which involves a lot of disclosure -- because it had more than $10 million in assets AND it had more than 500 shareholders. Most private companies, of course, don't have 500 shareholders, so they never run in to the Securities Exchange Act of 1934. But Google, being a John Doerr Company (the Silicon Valley equivalent of a Steven Spielberg Film), only went and doled out stock options to god knows how many thousand employees, and then its course was set. So yes, maybe they might as well IPO once they went the stock-option route. But since stock options are pointless unless there's an IPO, it's still worth asking why they decided to issue stock options...

Posted by: Felix on August 19, 2004 04:56 AM

Also, the headaches of running a publicly-held company aren't solely to do with disclosure. Up until now, Google has been a hugely successful company. From now on, it will only be a hugely successful company if its stock goes up. If the stock goes down, the press will start writing "what's going wrong at Google" articles even if nothing's going wrong at Google and the company is doing exactly what it would have done without an IPO but with much more positive press. If you see what I mean. After midnight, etc.

Posted by: Felix on August 19, 2004 05:00 AM

A private company can still issue stock options without doing an IPO. An incorporated entity will still have shares - they're just privately held. The shares still have a market value, but it's based on agreements worked out by potential buyers and the management. My company, for example, was management-owned and issued share options to all its employees. We were bought by a larger company that agreed to a formula to value those shares over periods of time, gradually paying employees cash in exchange.

Posted by: Jame on August 19, 2004 07:11 AM

Right, Jame, but your company didn't give out stock options to over a thousand employees. Giving an equity stake in a private company to a small number of people makes sense, and those kind of options can certainly vest in the event of a takeover. In Google's situation, however, a very small number of options was given to a very large number of people, and the only way they were ever going to make money off those options was if the company IPO'd.

Posted by: Felix on August 19, 2004 03:36 PM

...and it gets a first-day bounce of 18%, a tad more than those lovely equity capital markets bankers reckon is the sign of a good first-day performance - according to pre-tech boom figures of course.
So was it, as the WSJ has it, hubris? Or did they simply try to fight the financial equivalent of City Hall and simply not manage it? The IPO process in the late 1990s turned far too often into farce, was, it seems, frequently gamed or worse, and by 2002 sell-side research was held up to be lazy, biased, corrupt, and company quarterly reporting regarded too often as a laborious red herring. Along comes a company that tries to change the approach to all of that, and they get slammed for hubris? Hmmm...

Posted by: murray on August 19, 2004 08:55 PM