

Google, as a stock - franciscomello

This Alphabet transaction&#x2F;reorg. got me thinking:<p>Why should any investor pay a multiple (expensive, by the way) and get exposure to Google Ventures&#x2F;Google Capital&#x2F;Google&#x27;s other crazy ideas, when he&#x2F;she can just invest in Sequoia, A16Z, KKR, and other VC, growth equity, or private equity managers at book value?<p>Other than Google Search&#x2F;You Tube (what&#x27;ll be under the new Google CEO), it&#x27;s basically a bunch of VC-like bets right? Does Google have any great track record that would make an investor consider &quot;buying shares in its VC fund at a multiple&quot;?<p>Would love to hear some opinions on this theme.
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7Figures2Commas
Pre-Alphabet, Google investors were _already_ exposed to all of the company's
non-core businesses. The reorganization is designed to provide shareholders
with a cleaner, more transparent structure while giving Google the ability to
more easily operate its various businesses independently. If one of Alphabet's
independent companies takes off, the structure could also make it easier for
it to engage in transactions that reward Alphabet shareholders.

When 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.

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franciscomello
My point was: if you buy Google stock, you're paying Google multiples on top
of venture investments' multiples. That's exponentially costlier.

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).

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7Figures2Commas
I would suggest you're overcomplicating this by directly comparing Alphabet to
a venture fund, which it is not.

> 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.

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franciscomello
I really do get your point. But you are maybe failing to get mine: you get one
great business, and a bunch of VC-like bets. And they just made it painfully
more clear that that's the case.

