Conversion on Company\'s Financing Conversion of Google\'s

CONVERSION ON COMPANY'S FINANCING

Conversion of Google's financing

Conversion of Google's financing

What was the conversion process followed by Google? How did Google manage the issues of converting from a group of proprietors to investors with an executive team including a formalized operational strategy and concerns for public image?

Initially, Brin and Page (the owners of the company) were not for the opinion of converting their company into a public one since they wanted to maintain the control of Google. However, the need for expansion forced them into borrowing 25 million as a venture capital thereby putting them to consider the option of conversion (SmartMoney, 2004). The financial strains made them to consider the option of conversion after lending company demanded that they become public or else they would have to take back 12.5 million from the money (SmartMoney, 2004). Consequently, this triggered the two into the process of converting Google into a public company through hiring a CEO. The owners of the Google sought for the underwriting companies that helped in initiating the relationship between the company and the investors. The underwriting company helped Google in raising enough capital through acting as their securities to the investors. Consequently, this helped in building a good image of Google since it was able to secure more investors through the help of the underwriting companies.

Did Google use an investment banker initially to assist in the conversion process? Why or why not? Did that decision change, and if so what was the reasoning? Who, if anyone, benefited, and how did they benefit? How does this affect your opinion about using an investment banker in underwriting?

No. The two owners of Google considered the use of the investment banker as an option that would make them lose control in the management of the company. However, their decision to maintain the full control of the company changed when they realize that they need an IPO to help in solving their financial crisis (WRALtechwire, 2004). In order to get IPO, the company had to use the investment banker to help in underwriting by assisting them in raising the needed capital. The investment banker also served significantly in acting as security for the company since it was not financially stable. Through the investment banker, the company could also raise money to solve the problems related to finance. Both the companies involved in the deal (google and the investment banker) benefited from their relationship. Google was able to raise more than $2 billion dollars that would help in the operation of the company and the consequent increase in profits. The investment bankers usually operate as profitable companies, in their underwriting functions; hence, they were also to benefit from their relationship. I am in favor for the investment banking since they help a company to realize their potential in the market even though the latter may be facing financial crisis. As evidenced in the increased sale of their shares, Google is a perfect example to show that investment banker helps in increasing the performance of a newly introduced firm.

What determined Google's total value when it went public?

The cash flow of the company helped in marketing it to the public. For instance, Google had a low fixed asset-based denoting that the capital requirement for the running of the company would also be low. This attracts more investors since the high cash flow would mean that the reinvestment requirement would be low. The operation of the company majorly needed the availability of the internet connection and the presence of the computers hence reducing on the cost of assets needed by the company.

How did investors acquire Google stock before and after the involvement of an investment banker? What is your personal evaluation of Google's decision to convert to a publicly traded corporation? What were the positive and negative results of the conversion? Overall, was this an appropriate investment strategy? Will the conversion now create opportunities to gain capital for continued growth?

Before the involvement of the investment banker, the investors had a direct contact with the company. The two owners of the company had the initiative of marketing the company and in the process looking for the right investors for their products. The investors had to find ways of upholding a good image through the amount of capital they could offer to the operation of the company, for instance, the rival firms Kleiner Perkins Caufield & Byers and Sequoia Capital were able to secure investment with the company because of their strong image in the market (Netsuite, 2012). However, the investment banker took over all the talks between the company and the investors. They initiated any talks between the company and the investors.

To my evaluation, the decision of conversion to public traded corporation was a step to the growth of the company. Through selling its shares to the public, the company was able to increase its capitalization in the market and the subsequent exploitation of the market. Generally, as part of the positive effects, the company increased their command in the market because of the increased sales of their shares to the public. The shortcoming of the conversion is the reduced control of the company over its own management since it had to be responsible to the public. Yes, the conversion serves great in increasing the capital of the company since the selling of shares helps in diversifying the sources of capital.