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Insiders Get Rich Through IPO

Founders Each Make $41 Million, Are Worth About $3.8 Billion

By Terence O'Hara
Washington Post Staff Writer
Friday, August 20, 2004; Page E04

Google's Wednesday initial public offering, despite its failure to price as high or sell as many shares as the company had hoped, still made a host of existing stockholders instant millionaires and billionaires.

About a dozen insiders as well as friends, family and some folks just lucky enough to be in the right place at the right time sold portions of their Google holdings for a total of more than $464 million.

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The biggest individual winners are the top three executives, Larry Page, Sergey Brin and Eric E. Schmidt. Co-founders Page and Brin each sold about $41 million of their Google stock in the IPO. Yet that was just a tiny fraction of their total Google holdings, which at yesterday's closing price were worth about $3.8 billion each. Schmidt, whom Brin and Page hired as their chief executive in 2001, sold $31 million of his stock but still holds shares worth more than $1.4 billion.

Among the early Google investors who hit the paper jackpot in the IPO were Andreas Bechtolsheim, a co-founder of Sun Microsystems Inc., who invested $100,000 in 1998 before the company was even formally organized. His stake is worth $326 million. He sold about $31 million of his stock in the offering. Computer science professor David Cheriton, Page's and Brin's mentor at Stanford University, is worth $307 million. He sold about $29 million worth of his stock in the offering.

A pair of companies, chief competitor Yahoo Inc. and Dulles-based America Online Inc., are also big shareholders as a result of early business dealings with Google. Yahoo sold $137 million in the offering and kept stock worth $661 million. America Online sold $78.9 million worth of stock in the IPO and kept $653.1 million worth.

Among the smaller individual investors listed in the IPO prospectus is Roger Ebert, the Chicago film critic, who sold $171,615 of his Google stock in the deal and held on to shares worth $1.8 million.

These and other early investors in Google have already made money, having bought stock for under $10 a share. A large portion of the shares sold by existing shareholders in the IPO were originally bought for less than $1 a share in the form of convertible preferred stock or stock options.

There are initial restrictions on insider sales following Wednesday's offering, but all told, existing shareholders and employees will have permission to sell more than 260 million Google shares once all the restrictions lapse over the next six months.

The ultimate value realized for their holdings will depend on their decisions about when and how much stock to sell. Just as the stock shot up yesterday, it could go down in the future. Flooding the market with shares would drive down the price of the stock and by extension the value of the fortunes of stockholders such as Brin and Page or Google employees.

Decisions about sales are particularly significant for the pair of Silicon Valley venture firms that were the primary financial backers of Google in the few years following its 1998 founding. Kleiner Perkins Caufield & Byers and Sequoia Capital own 21 million and 23.9 million shares, respectively, stakes now valued on paper at more than $2 billion each.

When Google first filed for the IPO, both firms planned to sell about 10 percent of their stakes. But when investors balked at the initial pricing range, both decided not to sell any shares now. The test will be how judiciously they can sell their stakes in the coming months and years to both maximize their profit and not depress Google's stock price unduly.

"Venture capital firms by definition are private equity firms, so they don't hold on to public company stocks," said Don Rainey, a partner in North Carolina's Intersouth Partners, a technology venture fund.

But it can take time to successfully cash in. One of the most successful single venture investments of recent years was Carlyle Group's December 2001 public offering of United Defense Industries Inc. Carlyle netted more than $1 billion for its investors in that deal. Carlyle sold its last block of United Defense stock this spring.

In venture capital terms, Google's IPO is a "liquidity event," and to a venture investor there is nothing sweeter. "Any big liquidity event is usually a very satisfying event that comes after a long period of hard work," Rainey said. "Most [venture investors] that have been through it think they earned it."


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