Google Inc.'s founders relish describing the firm they've built as unconventional and anti-establishment. But the search engine juggernaut's carefully crafted roster of early-stage investors reads like a Who's Who of Silicon Valley, placing the company squarely in the mainstream of technology start-ups.
Initial investors in the company included Jeffrey P. Bezos, chief executive of Amazon.com Inc.; Andy Bechtolsheim, co-founder of Sun Microsystems Inc.; and Wilson Sonsini, the prestigious Silicon Valley law firm that is advising Google on its upcoming initial public offering, according to company filings.
In addition, Google has strong financial ties to Stanford University, which has hatched many start-ups, and where the co-founders met before dropping out of a PhD program to launch the firm. The university's president, John Hennessy, sits on Google's board of directors and is a shareholder, as are David Cheriton, a Stanford computer science professor, and the university's Office of Technology Licensing, which has taken ownership stakes in more than 100 firms.
The networking continued in a private round of financing done by the company, as Google attracted big-name venture capitalist John Doerr of the investment firm Kleiner Perkins, and Michael Moritz of Sequoia Capital. The two serve as Google board members, and each of the firms they represent invested about $12.5 million for 9.4 percent of the company. Analysts estimate those stakes could be worth more than $1 billion after the IPO.
"It is a traditional Silicon Valley old boys network," said Alan Meckler, chief executive of Jupitermedia Corp. "It is very similar to what happened in the 1990s when there were a group of 20 or 30 venture capital firms and key people. There is a lot of history repeating itself here."
Tom Taulli, a principal of Bridgewater Capital Corp. who has written a book on initial public offerings, said that by having Wilson Sonsini as the company's lead outside counsel, Kleiner Perkins as a major investor and Stanford as its progenitor, Google is following a time-tested path.
"Wilson Sonsini is blue blood and royalty in Silicon Valley when it comes to IPOs," Taulli said. "They are it. Call it whatever you want, but the facts are the facts. This is a very traditional Silicon Valley company. It doesn't look very unconventional to me. This is a model of how it is done."
Meckler said Bezos has been an early investor in a number of start-ups. The Amazon chief is often sought after because he can ensure access to high-quality software development, the right venture capital funding, and a cadre of insiders who know how to guide a start-up through early-stage growth and the difficult transition from private to public ownership.
Both venture capital firms encouraged Google's young co-founders, Sergey Brin and Larry Page, to recruit a seasoned chief executive who would have credibility with investors and others. Google then retained Heidrick & Struggles, one of the nation's most highly regarded executive search firms, and in 2001 the firm recruited Eric Schmidt, the former chief technologist of Sun, who was then running Novell Inc., to serve as chief executive.
As part of the pay day for its head-hunting services, both Heidrick & Struggles and the firm's Silicon Valley-based lead recruiter, John Thompson, became Google stockholders. Analysts estimate the value of their holdings could be tens of millions of dollars.
Google also cut deals on the corporate side that led to early investments by Yahoo Inc., which is now its chief competitor, and by Dulles-based America Online Inc. Google provided search services for users of both Yahoo and AOL, putting its brand name in front of millions of computer users.
In fairness to Page and Brin, when they describe Google as iconoclastic, they are referring to the way it has transformed searching the Internet and the firm's culture, rather than its financial backers. Google officials declined to comment.
Googlers, which is what the company calls its employees, work in a headquarters site the company refers to as the Googleplex and have on-site massage, medical care and more. With a high concentration of PhDs, Googlers spend one day a week on personal projects they select, which has led both to flops and successful innovations, including Google news alerts delivered via e-mail.
The company is also taking an unorthodox approach by conducting an electronic auction for its estimated $2.7 billion public offering, and inviting individuals to participate, rather than allowing Wall Street investment firms to decide how to allocate and price shares. Given Google's strong brand name and heavy use by millions of Web searchers around the world, the auction strategy is designed to create a more stable base of long-term investors by setting a high price for shares before they begin trading, often a deterrent to speculators looking to buy and sell for a quick profit.
Google's immense profitability has given it far more clout with early investors and partners than is typical for new, successful firms. The company relies on advertising for 95 percent of its revenue and is growing rapidly, posting sales of nearly $1 billion last year, and profit of more than $100 million. In the first quarter of this year, the company had $389.6 million in sales and about $64 million in net income, both more than double the amount in the same quarter a year ago.
Google's early financial success has meant that it has not had to seek multiple rounds of funding -- and therefore has not had to yield as much control as other start-ups. Brin and Page each own more than 15 percent of the company. The founders intend to maintain control, even after the public offering, by having two classes of stock with unequal voting rights.
As Google has grown, it has parted ways with some early investors. For instance, Google and Yahoo were once partners, with Google powering the searches on Yahoo's Web site. Through that relationship, Yahoo acquired Google stock that its chief financial officer recently estimated could be worth hundreds of millions of dollars after the IPO. Now the companies are fierce competitors, and Yahoo stands to gain from the past relationship.
Likewise, America Online cut a multiyear deal with Google in May 2002 that kept the search engine on the nation's biggest Internet service, and gave AOL the right to buy 1.9 million Google shares for $22 million. Analysts estimate the holding, which is now 7.4 million shares after stock splits, could be worth several hundred million dollars after the public offering.
"It is very much an insiders' company," said John Tinker, a managing director with ThinkEquity Partners LLC. "Yahoo came out of Stanford with some venture capital backing. This is the production line that Silicon Valley has put together. This is how they have created companies. Even though [Google] has revolutionized how we look at the Internet, it has been birthed in a very traditional manner."
Tinker doubts that the proposed auction method, and outreach to individual investors, will succeed and take the IPO process in a different direction. Notwithstanding the auction, Google does retain the right, according to public filings, to set the offering price, and make allocation decisions, in consultation with its investment advisers.
"In the end, I wonder if they may not be traditional in how they bring this company public," Tinker said. "I wonder, when push comes to shove, if they won't be looking at big investors getting a large piece of the pie."