The Gold In Google's IPO Goes To...

If Google Inc. goes public in early 2004 as planned, the Internet search kingpin easily could set a record for initial public offerings. Analysts say Google could fetch a valuation of $20 billion. That would make it the most richly valued Internet company ever to go public, according to Thomson Financial (TOC ) -- far exceeding the $9 billion valuation garnered by online broker TD Waterhouse Group Inc. in 1999 or the $1.9 billion price tag fetched by Internet hosting outfit Genuity Inc. (LVLT ) in 2000.

The IPO would be equally monumental for Google insiders and key backers. Although Google, its execs, and its investors decline to discuss their equity stakes, BusinessWeek culled venture data and interviewed sources close to Google and its investors to piece together the stakes of several key players -- and boy, could they hit paydirt.

First, of course, Google's IPO must go as swimmingly as many expect. Even if estimates that Google will pull in $100 million in net profits on $1 billion in sales this year are conservative, as some analysts argue, $20 billion is still a lofty valuation. However, Google believers say it could be reasonable given the supercharged growth of Google's revenues and profits. They also point to its dominance of the lucrative search business: Google now handles nearly 40% of global Internet searches, up from 1% in 2000.

When Google does go public, the biggest winners, of course, would be Google's co-founders, Larry E. Page and Sergey Brin, who dropped out of Stanford University's computer science graduate program to found Google in 1998. Today the pair, now both 30, each still owns over 15% of the company, according to a source close to Google. So a $20 billion valuation would peg each founder's stake at well above $3 billion.

Google also could represent one of the biggest venture-capital payoffs this decade. Its two most prominent backers, Kleiner Perkins Caufield & Byers and Sequoia Capital, ponied up a little more than $10 million each in the summer of 1999, according to venture data and people familiar with Google's financing. Through these investments, each firm today owns an estimated 10% of the search giant, they say. That means they could pocket $2 billion apiece -- a staggering 20,000% return on investment.

Ironically, Yahoo itself stands to clean up. It invested $10 million in Google in 2000 -- back when the companies were on friendlier terms. That stake now represents slightly less than 2% of Google, according to sources -- which should work out to a cool $300 million. Although far less than what the VCs will make for putting up the same amount a year earlier, that would still handily top Yahoo's expected 2003 net profit of $230 million.

For sheer return on investment, some of the best returns could go to Google's earliest individual investors. Among them: Stanford professor David R. Cheriton and Cisco Systems Inc. (CSCO ) executive Andreas Bechtolsheim, who contributed $100,000 to $200,000 apiece to Google's initial financing round in 1998. Bechtolsheim, in fact, interrupted Page and Brin partway through their presentation to fetch his checkbook. Today, each owns over 1% of the company -- a stake that could be worth at least $200 million, according to a source close to Google.

Cheriton, who still drives a 1993 Honda, isn't exactly obsessed with the financial payout. "At some point," he says, "money is a bigger problem than a solution." Easy for him to say.

By Linda Himelstein and Ben Elgin in San Mateo, Calif.

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