The Politics of Googles IPO

The aftertaste of being taken for a ride is one reason politicians lump Silicon Valley with Enron when it comes to stock options, says columnist Chris Nolan. And it's worth remembering that sentiment when it comes time to consider Google's stock

Theres nothing like a little money to get Silicon Valley excited. Well, actually, theres nothing like a hot public offering. And Googles offering is hotter than hot. But as Californians know, intense heat can sometimes create brush fires.

Unlike Netscape, which went public to almost as much fanfare and celebration nine years ago, Google isnt being brought to a stock market unfamiliar with the Internet or the valleys technological wizardry. Silicon Valley has a history with investors, now. And for all the good—in terms of innovation and jobs—that has been created in the valley, theres some bad feeling, too.

That bad feeling—the slight aftertaste of being taken for a ride—is one reason politicians lump the valley with Enron when it comes to stock options. And its worth remembering that sentiment when it comes time to consider Googles sale. Google has. The revised filing the company made with the Securities and Exchange Commission includes a section decrying the need to treat option grants as expenses.

So whats the most unusual thing about the Google offering? Unlike traditional stock offerings, Googles early shareholders—its backers, executives and other friends of the firm—can and are selling a great deal of stock. All told, those insiders are offering almost 10.5 million share of stock for sale at between $108 and $135 a share.

The company is selling a bit more, just about 14 million shares. A lot of rich people who acquired their stock at pennies per share are going to be even wealthier. And they are getting that way in a process thats being wildly (and correctly) described as being more open—and therefore more honest—than whats gone on before.

Thats important. Because offerings like Googles have a way of starting trends. That could mean more "dutch auctions"—where the final price is set by the bidders—as tech companies try to follow in Googles shoes and do an end-run around the banking establishment and show shareholders the wonders of a disintermediated stock market. Clearly thats what Google founders Larry Page and Sergey Brin say as much in their "owners manual" to shareholders.

But it could also mean a gradual end to "lock-up" periods where insiders are barred by agreement between the company and its banks from selling on the public market. Google has lock-ups; the bulk of insiders shares cant be sold for the usual 180 days after the offering date. But the company emphasizes that its restrictions are quite flexible; they can be revoked at any time.

Next page: Big, fat political trouble in the works?