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4/26/2004
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Google's Founders Wary Of IPO Headaches

Co-founders Larry Page and Sergey Brin are in line for millions of dollars when the company goes public, but they're in no hurry to be embraced by Wall Street.

SAN FRANCISCO (AP) -- Google Inc.'s looming initial public stock offering is stirring tremendous excitement, but it shouldn't be surprising if its biggest beneficiaries have some reservations.

Some sobering changes are in store at the company, whose breathtaking rise has had a distinctly funhouse flavor.

Any IPO creates major distractions and business culture transformations, and Google's competitive edge could be dulled if iconoclastic co-founders Larry Page and Sergey Brin are forced to march to Wall Street's prosaic beat.

An IPO "can create more accountability, but it doesn't necessarily foster long-term value," said Peter Thiel, who took his Internet startup, PayPal, public in 2002 before selling the company to eBay for $1.3 billion. "(It) changes the emphasis from building a great business to trying to meet the quarterly (earnings) numbers."

The possible downside of an IPO hasn't eluded Page and Brin, who launched Google in 1998 while they were graduate students at Stanford University and continue to guide the Mountain View-based company, for which a key filing deadline approaches this week.

While consistently refusing to discuss IPO specifics, both men have repeatedly emphasized they are in no rush to take the company public.

Their reluctance may seem surprising, given that nobody stands to profit more from a Google IPO.

Page, 31, and Brin, 30, are believed to own roughly one-third of Google, which is expected to be worth between $15 billion and $25 billion after its stock market debut.

But Page and Brin also prize Google's quirky culture, which includes an array of colorful office toys, roller-hockey games, free meals prepared by the Grateful Dead's former chef, and a business mandate requiring workers to devote one day per week to their own pet projects.

The freewheeling approach might be not embraced by hard-nosed investors likely to demand more financial discipline in the perennial quest for higher profits, said Boston attorney David Walek, who has participated in a dozen IPOs as the co-head of Ropes & Gray's high-tech practice.

"It doesn't mean that Google has to be a lesser company, but it does mean it will be a different company," he said.

Ultimately, an obscure securities rule seems likely to override any possible second thoughts about a Google IPO.

A 70-year-old regulation requires privately held companies with more than 500 security holders of record and $10 million in assets to open their books within 120 days of the end of the fiscal year in which they crossed the reporting thresholds.

Having awarded stock options to most of its 1,000-plus employees, Google is believed to triggered the rule last year, giving the company until Thursday to shine a light on its finances for the first time.

Google theoretically could just file an annual report for 2003 without pursuing an IPO, but most observers seem to think that strategy would make little sense. That's because Google would encounter all the compliance headaches of a public company, incurring millions in annual expenses, without reaping any of the financial benefits.

And there is a substantial upside to Google's IPO. Analysts believe Google could raise $2 billion to $4 billion--money the company could deploy in an intensifying battle with rivals including Yahoo! Inc. and Microsoft Corp.

Ironically, Yahoo also is in line for a huge windfall from Google's IPO. While the two companies were still friendly, Yahoo invested $10 million in Google in mid-2000, acquiring a stake that figures to be worth hundreds of millions of dollars after an IPO.

The employees and venture capitalists that helped build Google also seem eager to profit from the search engine company's immense popularity, increasing the pressure on Page and Brin to sign off on the IPO.

Once Google goes public, the company almost certainly will lose many employees who will become so wealthy that they either will decide to stop working or break away to launch their own startups, predicted Thiel, now a San Francisco venture capitalist.

Google also may lose some of the spontaneity and flexibility of a tech upstart as it becomes more beholden to Wall Street's short-term interests, said Kamran Pourzanjani, president of PriceGrabber.com, a privately held E-commerce company.

"Being private has tremendous benefits because you can focus more on the long term," Pourzanjani said.

Based on his experience, Thiel said Google's management should brace itself for unexpected twists and turns.

"When PayPal went public, we undervalued a lot of the costs and overvalued a lot of the benefits," he said.

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