seems like they're being pretty dicky about everything. i skipped my entrepreneurship and private equity lectures on IPOs so i can't really comment on whether or not google is being excessive in their control of information.
Wall Street Journal - April 27, 2004
At Google, Mum's the Word
About Almost Everything
By ROBIN SIDEL, MYLENE MANGALINDAN and KEVIN J. DELANEY
Staff Reporters of THE WALL STREET JOURNAL
April 27, 2004; Page B1
Google exists to make information accessible and useful. But when it comes to its initial public stock offering, the Internet-search powerhouse has created an ultrasecretive process the likes of which Wall Street has never seen.
Google Inc. executives banned investment bankers from its Mountain View, Calif., campus last year. Those bankers lucky enough to be briefed on the plans had to sign affidavits swearing they wouldn't leak details to the press. Some early Google investors say they still are in the dark about the IPO plans.
Google is a rare start-up that wields so much power it has insisted on carving its own path through the well-established IPO process. Its distinct culture and desire for control have reshaped the normally staid system, creating tension between the company and its bankers. The company's expected stock offering comes at a time when Wall Street still is recovering from a series of IPO scandals that reduced the number of new offerings after the tech bubble burst, making the bankers more amenable to Google's demands.
Even beyond the IPO, secrecy permeates Google's relations with the outside world. In some ways, the company is like a tease: It reveals just enough information to entice the public and reporters about its operations, yet skimps on the details. Google, for example, won't disclose exactly how many employees it has; "more than 1,000" is the stock answer. Nor will it disclose how many computer servers it deploys to respond to millions of daily search requests; "more than 10,000" is the reply. Outside estimates run closer to 100,000. A Google spokeswoman declined to comment for this article.
Another form of discretion involves the foundation of Google's business: how its computers decide the order in which they display Web links when a user types in a search request. Advertisers and others long have tried to figure out how to make their sites appear higher in the rankings, boosting the likelihood users will click on them. Google guards its formula closely, and updates it from time to time, to make it tougher for outsiders to try to game the system.
Until now, Google has wielded its secrecy as a competitive weapon. "One of the luxuries of being a private company is that we can afford to move in a way that as a public company is much more difficult," Chief Executive Eric Schmidt said in a speech last May.
Founders Sergey Brin and Larry Page have long resisted an IPO -- despite the fact it would make them billionaires -- in part because it will require them to disclose much more to outsiders and rivals, say people familiar with the matter.
A publicly traded Google could be in for some culture shock. For one thing, the company will have to disclose for the first time how much money it makes, and from whom. Moreover, going public will subject its headstrong founders to questioning by a broad pool of investors.
"Google has a very big secrecy problem and a really big communications challenge if they go public without having resolved that," says Matthew Berk, an independent Internet industry analyst in New York. Google advertisers perennially complain about how hard it is to get information out of the company. And some business partners and would-be partners have said its opaque operations have hindered efforts to work with it.
In late 2002, Karen Howe, managing director of Singingfish, a search engine that specializes in finding audio and video information on the Web, approached Google, seeking to connect her company's technology to Google's. In an interview last November, Ms. Howe said she found it "hard to find the right person to talk to." The companies never did a deal, and Singingfish was acquired last fall by Time Warner Inc.'s America Online unit. "It's not the easiest maze to negotiate," she said of Google. Today, she says AOL's partnership with Google means that's no longer a problem for her.
The company is still clinging to its closeted ways as it moves through the process that would bare its inner workings for the first time. By Thursday, Google is expected to disclose details about its finances under a Securities and Exchange Commission rule governing closely held companies with more than 500 shareholders. Many expect that disclosure to come in the form of an IPO filing.
Wall Street deal makers, jostling to win a lucrative role in preparing the IPO, have found the process pretty rough going. Last September, Google representatives called about a dozen investment banks and asked their officials to sign confidentiality agreements within 24 hours. Then, Google sent the banks a list of detailed questions about the firms' history in underwriting public offerings, including the performance of those stocks and how the banks had distributed IPO shares, according to people who have seen the questionnaire. Google also sought advice on the timing of an IPO and how bankers would value the company.
While Google asked the banks for a lot of information, it offered little in return. In a highly unusual move, Google didn't hand over any financial data. Instead, bankers had to rely on assumptions derived from other Internet companies, as well as their own estimates about Google's business, to project a value for the company. "It was an incredible hassle," said one banker who worked on a pitch.
In October, Google interviewed prospective underwriters -- including Wall Street powerhouses Goldman Sachs Group Inc., Morgan Stanley, Citigroup Inc., J.P. Morgan Chase & Co. and Lehman Brothers Holdings Inc. -- at the Palo Alto, Calif., office of law firm Wilson Sonsini Goodrich & Rosati. Google Chief Financial Officer George Reyes, General Counsel David C. Drummond and other executives grilled the bankers on everything from estimated IPO valuations to prospective timing for an offering, according to people who attended the meetings. Also attending was Lise Buyer, a former Wall Street analyst and portfolio manager hired by Google last year and now a member of the IPO committee.
Throughout the process, Google barred the Wall Street firms from discussing IPO prospects, internally or with people outside their firms. Only a small number of bankers at each firm are involved in the IPO process; even top-level managers aren't allowed to review IPO documents. The company has sent investment bankers stern letters reminding them to keep tight-lipped about the process. At least twice, when media reports surfaced about a possible IPO, Google has required bankers to submit sworn statements affirming they hadn't discussed the subject with reporters.
Meanwhile, Google told its prospective bankers little. Ms. Buyer warned one investment bank after its October presentation not to wait. "It'll be at least a couple of days until we let you know," she said, according to one person who was there. But days turned into months. "I haven't seen anything like this at all, where there's no communication," one person involved in the process said in January.
The banking thaw broke again about a month ago. Google summoned representative of four banks to Wilson Sonsini's offices, and told Credit Suisse First Boston and Morgan Stanley that they had been tapped to lead the offering, according to people familiar with the matter. Goldman Sachs and Citigroup were told they would have secondary roles, these people say.
Then, about two weeks ago, Google notified a second group of banks of their roles in the planned IPO. At the same time, bankers have been paranoid about whether Google is really showing them its hand. Some worry that company executives have deliberately supplied them with misinformation to see whether they would leak it.
The tight control has flummoxed the bankers accustomed to working closely with a company on an IPO. "Here, the bank is seen as a tool in the process as opposed to a partner," said someone familiar with the situation. Indeed, Google still hasn't given even basic financial data to most of the banks it has hired.