Google, as a stock
This Alphabet transaction/reorg. got me thinking:
Why should any investor pay a multiple (expensive, by the way) and get exposure to Google Ventures/Google Capital/Google's other crazy ideas, when he/she can just invest in Sequoia, A16Z, KKR, and other VC, growth equity, or private equity managers at book value?
Other than Google Search/You Tube (what'll be under the new Google CEO), it's basically a bunch of VC-like bets right? Does Google have any great track record that would make an investor consider "buying shares in its VC fund at a multiple"?
Would love to hear some opinions on this theme.
4 comments
[ 2.4 ms ] story [ 17.3 ms ] threadWhen you invest in a new venture fund, you're not buying anything at book value. You're providing capital and trusting that the folks who are going to deploy it will be able to achieve a return consistent with your goals. Most funds charge an annual fee of 2% of assets under management and investors are locked in for at least 10 years, so there's no free lunch. Given that the multiples in the private market today are even more pronounced than in the public markets, investors in venture funds are effectively paying significant premiums too.
Bottom line: if you like the core Google business and want some exposure to the craziest ideas in Silicon Valley, Alphabet might be attractive. It's definitely not comparable to a venture fund but still might be as close as your average retail investor will ever come to a Bay Area venture fund. Who knows, it could become the next-gen Idealab if Larry and Sergey have their way.
When I say you're investing at book value, I mean, of course, book value at fund share level, so no second layer of multiples.
The venture investments made by Google have the same liquidity constraints, and you could argue Google's SG&A are much more expensive than 2% management fee (not sure about the performance fees, though).
> My point was: if you buy Google stock, you're paying Google multiples on top of venture investments' multiples. That's exponentially costlier.
Google's venture investments are negligible compared to Google's overall enterprise value. I doubt they are a real factor in the stock price and in fact, it's possible that you're getting exposure to the venture arm for free.
> The venture investments made by Google have the same liquidity constraints...
You're missing the point. When you invest in Google, you can exit your position at any time.
> ...and you could argue Google's SG&A are much more expensive than 2% management fee (not sure about the performance fees, though).
Google's overhead is associated with a business that generated more than $65 billion in revenue last year. The management fees paid to your friendly neighborhood VC are not.