Google Financing Issues That Google

Google Financing issues that Google faced when it went public: the impact on ownership control and return Whenever a company goes public and becomes an IPO, there is always a danger of its founders losing a certain amount of ownership control over the behavior of the company. A private company is only responsible for making a profit for its owners. A publicly traded company is responsible for pleasing and making a profit for its shareholders, who technically become joint owners of the company, because of their investment in its infrastructure.

Occasionally, a company with Google's reputation restricts the majority of its publicly traded shares to an elite group of shareholder picked by the investment bankers handling the deal, to ensure that the founders maintain control over the direction of the company.

But in a move that surprised conventional Wall Street analysts, Google said the price of its IPO would be determined "through an auction designed to give the general public a better chance to buy its stock before the shares begin trading." (Liedtke, 2004) Also displeasing to Wall Street bankers was Google's electronic selling of such critical first shares.

This meant that the banks handling the deal, "may get less than $100 million for the sale, based on commissions in similar-sized deals, possibly less than the 4% paid in IPOs of similar size...All this is going to be done electronically. It's going to be hard to justify the usual fees." (Liedtke, 2004) Google also engaged in a bidding war between the two major stock exchanges to drive up widespread shareholder excitement, rather than trying to narrow its base and maintain control over the sales.

Google set the stage for a publicity-generating battle between the New York Stock Exchange (NYSE) and Nasdaq Stock Market. (Liedtke, 2004) This showed a tremendous confidence in Google's ability to continue to manage its company, outside of conventional financial institutions, and to buck conventional industry wisdom that it was a poor time to go public, given overall weak cash inflows into mutual funds and signs that the pricing softness in stock deals was not abating.

(Harris, 2004) Google was able to show such confidence, even arrogance, however, in its initial transformation into an IPO because of its unique, stratospheric success as a company. Also, by establishing a wide shareholder base amongst the public, it was able to resist control by a concentrated faction of shareholders.

When going public, most IPOs fall "under greater pressure to produce steady earnings growth -- an expectation that some executives say leads to shortsighted management decisions," and the management of a public company can feel compelled to "make some decisions just so you can show growth from quarter to quarter."(Liedtke, 2004) Regarding Google, one industry analyst stated: "After the IPO, they're going to have to think in terms of predictable quarterly results and momentum...You have to have a level of predictability and experience to warrant being a public company."(Liedtke, 2004) But canny Google founders, forever thinking outside of the box, found a way "to insulate themselves from outside pressure," by creating a two-class stock hierarchy designed to give them effective veto power...selling Class A.