Google IPO and its effect on the Venture Capital Industry

By Keith Henry
Posted Thursday, September 16, 2004

Will the Google IPO have any impact on the Venture Capital market? FundingPost (http://www.FundingPost.com) surveyed 32 Venture Capitalists and Angel Investors for their opinions. FundingPost is happy to share these responses from leading venture investors as it should help guide CEOs of emerging companies who plan on raising capital today:

1) Google raised $25 million from Sequoia Capital and Kleiner Perkins Caufield & Byers. Would you have invested in Google’s Series A round if they had presented to you?

Joe Rubin, Director, FundingPost:
“We received mixed answers – the Angel Investors basically said ‘yes’ as they liked the technology."

Atul Madahar, Principal, TL Ventures:
“No, because it would have been too difficult for us to really understand the superiority of their engine without working code. Also Yahoo was the dominant search engine at the time followed by half a dozen other engines, meta-engines, etc.”

Darren Wallis, Venture Partner, Cross Atlantic Capital Partners:
“I would have passed on it because I would have thought the business model would not be sustainable, given the highly-fragmented space at that time. It just shows you that sometimes you have to look past the business model and focus on the superior technology. Then, the technology drove the business model.”

Eric Janszen, Managing Director, Osborn Capital (Early-stage angel fund)
“We have certainly invested in bright students with good ideas out of universities, but not recently. Would we have invested in these particular bright students at that time? I was fortunate enough to meet Google's founders last year at Stanford and was impressed by the simplicity and clarity of their vision, which had not changed from day one, and no doubt that would have appealed to us then. Most company ideas you see today are features of Cisco or Microsoft products, or business applications.”

2) Does the Google IPO have any impact on venture investing for the next 12 months? Will it increase valuations? Does this mean there is new "hope" for exits for venture-backed companies?

Joe Rubin, Director, FundingPost:
“The majority of the VCs told us that it is ‘business as usual’ and there will not be much of an impact. At FundingPost, we believe that the impact will be felt at the CEO level – where a founder of a startup sees the potential for a home run in their exit.”

Jack Carsten, Managing Director, Horizon Ventures:
”The firms that invested in this company are going to be ‘rescued’ from poor returns, as it is one of the only successes in the sector. That might influence LPs to reinvest in Internet centric funds...but I doubt it. Public and private valuations tend to move together sector by sector, even though this often does not make logical sense. So if the Google IPO valuation holds up over time, it can become a benchmark for exit valuations. On the other hand, if it tanks, it will only reflect badly on the sector - the greedy VCs cheated the public again....”

Chris Roser, General Partner, Roser Ventures:
“The IPO market always has an impact on venture investing in regards to higher valuations the more open the IPO window. The question is how much Google will influence the IPO market and to the extent it is successful, I believe, it will contribute to a good IPO market.”

3) Do you feel that this will heat up the M&A space - with Google now having "currency" for acquisitions and Yahoo and Microsoft racing to compete?

Joe Rubin, Director, FundingPost:
“The majority of the investors felt that only a few companies would benefit directly and that the M&A space has improved this year independently.”

John Shulman, Managing Director, Allied Capital:
“There is no doubt that M&A will heat up. It is happening anyway and this will only accelerate the velocity of activity.”

Jesse Lawrence, Associate, Updata Partners:
“The IPO may heat up the M&A activity within the search and related sectors, but should not have a significant effect on other software sectors.”

About FundingPost
For over three years FundingPost has worked with thousands of Angel and Venture Capital Investors and Entrepreneurs. With over 3,500 CEOs and 600 Venture Funds attending events in 15 cities nationwide, a quarterly Dealflow magazine, and a deal-exchange Website that has, on average, seen an introduction of an Investor to an Entrepreneur every business day since its inception, FundingPost believes that it is important to reach investors in every medium possible -- both online and offline, and is experiencing strong growth as the capital markets continue to improve worldwide.