Googling fo gold

"Googling for Gold" - A market cap over $US120 billion. $US8 billion in cash. Plus 5 billionaires, 1,000 millionaires. No wonder dealmakers, Vcs, and brokers are clamoring for a piece of the action."(BusinessWeek, 5 December 2005). Google's rapid growth is an outstanding case addressing a range of capital infrastructure issues and outcomes for emerging e-business technologies and applications. Using the BusinessWeek Article on Google from 5 December 2005, discuss the different types of investor involved with (or hoping to be involved with!) Google, Google's approach to managing prospective investors and why Google is so attractive to investors.

The main groups interested in riding Google’s fortune are Venture Capitalists (VCs), Entrepreneurs, and investment bankers. There are also financial managers who are keen to manage the wealth of the “Googlers”.

The venture capitalists and investment bankers are looking at financing small start up companies with technology or services that might fill a gap in Google’s portfolio, they are looking at making money by selling the technology/service/strategy/company to Google. As Google are known to be not interested in doing big deals with anyone, Entrepreneurs with smaller investment (e.g. $100,000) are now by passing VCs, and go straight to Google offering their unique service/technology, etc. in the hopes of pocketing a bigger share of the proceeds of a sale to Google. Google has announced that they would fund projects that have a 10% chance of earning a billion dollars over the long term, especially when the initial investment is small. Google’s biggest deal to date is the $102 million it paid for online ad upstart Applied Semantics Inc. in 2003.

These investors or potential investors are interested in sharing Google’s wealth, as Google has a price-earnings ratio of 70, which represents one of the richest dealmaking currencies anywhere. And, Google has market cap of $120 billion, double that of its nearest competitor, Yahoo! There’s also big potential earning from online advertising. In 2004 US advertising spend was estimated between $300 – 400 billion. $10 billion was spent on online advertising, and is growing between 25 – 35% per year. Advertising.com, an e-marketing company, 40% of their revenue came through Google.

For interested investors, Google has Startup Day, where those interested are asked to fill in a spreadsheet with a brief description of each company and its business/technology, an overview of the team, any data points they’d like to share, and a perspective of why the company might work with Google. So, Google basically asking the potential investors to share their trade secrets while Google offers little information in return. Google strongly prefers to gobble up startups before they have embarked on a sales and marketing strategy, viewing companies that are completely tech focused as a better cultural fit. It prefers to acquire small local technology teams that it can simply plug into its headquarters. Google has passed on larger, out-of-town deals, in large part because of integration worries.