When former Wall Street analyst Lise Buyer helped take Google public in 2004, anything seemed possible. Yet on the heels of a quarter when not a single technology company went public, most in Silicon Valley are no longer sanguine about their options. Buyer doesn’t understand why. “I get cranky when talk turns to an IPO ‘drought,” she says. “VCs may be frustrated, but they should be happy about having to wait longer. Going public requires a lot of time and focus and energy on things that don’t involve growing a business. And companies that wait longer to go public tend to perform much better once they do.”
Buyer has reason to have faith in the IPO market. Since leaving Google in 2006, she’s been helping late-stage companies navigate the challenging process of going public at her company, Class V Group. She works with four companies a year — a pace she set for herself after years of working 100-hour weeks. But it isn’t hard to believe her when she says that she has been contacted by numerous others. “The biggest, happy surprise for me is number of companies that are thinking of IPOs in late 2009 and 2010, and that what to know what they should be thinking about from now,” she says.
On Friday, Buyer and I talked at length about what she regrets about Google’s IPO, where the bar is for companies wanting to go public today, and why she’d like Facebook to know that should it be looking for help with its IPO, well, she’s available. Part of that conversation follows. I’ll post the rest of our interview tomorrow.
As an analyst at Credit Suisse First Boston in the ’90s, you were a big Internet bull, but unlike some analysts, who were skewered for their cheerleading, no one came down on you. Why do you think you were spared?
I don’t want to sound arrogant, but over and over, I was clear that there are periods of times in the securities markets where folks with money can make a great deal, but that they need to understand that they are speculating and not investing. I was definitely wrong on companies and recommended some things that absolutely didn’t work, but I also said, don’t value businesses on eyeballs, and if the fundamentals aren’t there and you want to invest anyway, then understand that you may as well be gambling in Vegas. By the way, I got fairly aggressively abused in chat rooms from people who were angry that I wasn’t a more of a bull.
You worked at T.Rowe Price as a buy-side analyst earlier in your career. Were you surprised by the numbers of institutional investors who were swept up in the bubble?
You know, many fundamental investors said, no thank you, and a year later, stocks were still going up. After a while, it comes to a point where you say, either I’m the smartest person ever or I’m wrong, and it takes a massive amount of arrogance to be the former. Anybody who said, “this doesn’t make sense; I’m not investing,” was wrong for three years. And as a professional money manager, how do you justify that? We all capitulated because there was so much enthusiasm.
If I could tell you that I knew we were at the peak it was be awesome but I wouldn’t be telling the truth. I left because analysis had become a game. It became so apparent in late ‘99 and early 2000 that valuations had nothing to do with the underlying data but rather who could put out the most press releases, and I wasn’t cut out to be a great marketer.
How did you land at Google in 2003? Were you recruited from your VC job?
The truth is that I had no first-hand inner-company experience, so I felt that I had no business giving advice to people who did. It’s so much different on the inside and I didn’t understand it.
In the meantime, I had known a number of Google’s principals, like Eric Schmidt, for years. I had met Larry [Page] and Sergey [Brin] when they were still in Palo Alto. So I sent them a note that said, “I don’t know if you’ll ever want to go public but I bet that, having been on the other side of the table, I could be helpful to you
Looking back now on the IPO, which you famously helped architect, of what are you proudest?
We got some stuff so right and some so wrong. I’m proudest that the shares landed in the hands of both retail or institutional investors who had figured out what price they were willing to pay, though to be fair, that it was an auction at all — all of that credit goes to the founders. They decided what they wanted to do and it was up to us to implement.
I’m very proud of the fact that we did a lot of stuff differently and as a result have changed the way some IPOs are done. We started a lot of questions with “why,” and if answer was “because this is the way it’s done,” we questioned it. I also think that Larry and Sergey’s letter [dubbed “An Owner’s Manual for Google’s Shareholders,” included at the beginning of the company’s regulatory filing for its IPO] was a brilliant move. It was, let’s tell people how we run a company, and it’ll help us and it’ll help our investors.
How has that changed how some IPOs are done?
[In my work with pre-IPO companies], where there’s a management group who controls a meaningful percentage of stock and might have some out-of-the-norm opinions about how you run a company, I’ve copied Larry and Sergey’s letter idea, because I believe it increases transparency.
Also, in several cases, I’ve been very enthusiastic — as I was not with Google — about putting in a dual-class structure, so that voting control remains with the folks who are at company early. It makes sense at companies where the culture is embedded and unusual.
Don’t stockholders hate two share classes because they’ve no control over management?
It’s not terribly popular with them, but if you look at empirical data, it benefits shareholders more often than it harms them. Early on, Google got advice from many directions, people saying, “You have people going to the home page; why not put ads there?” But the folks managing Google said, “We don’t want to. We think it’ll be better for users in the long run to have a simple interface. Had they been subject to greater pressure from investors with a shorter-term perspective, it’s not clear they could have made decisions like that.
Also, the correlation isn’t what you’d think it is. Yahoo doesn’t have a dual-class stock but was nonetheless able to turn down a takeover bid that was meaningfully higher than its stock price. Dow Jones was a closely held dual-class stock, but Rupert Murdoch understood that if he came in with a bid high enough, the Bancroft family would have no choice to accept it.
Last point: it used to be that when you took a company public, a lot of it was held by long-only mutual funds, and they would often side with management in making decisions over time. But the investor base has changed dramatically.
What do you wish you’d done differently at Google?
Plenty. On the day of the IPO, we had a 15-day lockup release. That was just offensive to investors; it shouldn’t have been there. And we did so many things unusually that it might have been overkill. The dual-class structure, using [everyone's first rather than full] names in the filing, not preparing for the roadshow. We came across as exceptionally arrogant and I understand why.
We also literally didn’t say anything more in our meetings with institutional investors than in our online roadshow, which anybody who was eligible to invest in the IPO could see. We were absolutely doing that in the spirit of treating investors fairly, but we took a fair amount of abuse for not disclosing enough.
And we undercompensated Wall Street’s sales force. We gave them incentive to work against us. They didn’t promote us and there were an awful lot of rumors at the time about the strength of Google’s business.
Part II of the interview here.