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.
The Politics of Googles IPO – Page 2
As with stock options, the potential for trouble here— big, fat political trouble— is big. Google may not be the company that triggers a backlash. But it may launch a trend that brings the hammer down.
Why? Because the public is fickle. The memory of techs reputation for fly-by-night economics is fading, but it could easily be revived, sort of like a brush fire that isnt quite out. Just get a few disgruntled shareholders in a room with an ambitious congressman, and youll a recipe for big trouble: mandatory lock-ups, for instance (right now, theyre not required by law). Or even more complicated and scrupulous insider disclosure, a kind of Sarbanes-Oxley for individuals, not just companies.
Sarbanes-Oxley gets passed in part because gotta-have-it dot-com went to who-needs-it-dot-bomb in the blink of an eye. Imagine a series of offerings with Googles very flexible insider terms that do poorly after the stock is offered to the public.
Google has anticipated this very event; its warnings are explicit and repeated.
But, as anyone who went through the last surge of interest in tech remembers, those warnings are often brushed off by shareholders and fudged by those offering shares for sale.
The headlines last time werent pretty. Remember the Fortune cover, “You bought, They sold,” along with the outrage and hurt feelings engendered in tech circles?
This time the stakes are higher. The first time around this was a public relations problem thats faded away. Next time it might not be so simple to resolve or easy to dismiss.