VC Watch: Google share surge could lead to VCs cashing out to avoid huge expiring lockup
By Tom Foremski - SiliconValleyWatcher.com
Wall Street’s delight with Google’s first quarterly financial report late last week led to a big jump in Google’s share price as analysts boosted their earnings estimates. This seemed a little worrying in that it reminded some of the internet bubble years when analysts were accused of hyping dotcoms with large upgrades…and we know the rest of the story.
It’s not quite the same this time around. The Google jump stems more from analysts getting to grips with Google’s business model and understanding the dynamics of the surge in online advertising. Analysts now have more information to make a better judgement on Google’s future performance.
The key for Google will be in how effective it is in managing Wall Street expectations—this is important to its stated goal of reducing the volatility of its stock. However, managing expectations is made harder if Google won’t talk about future financial performance—as it said prior to its $1.67bn IPO.
One interesting question right now is: when will Google’s VC investors time the sale of their stock?
Remember: a huge chunk was pulled out of the IPO auction by Sequoia Capital and Kleiner Perkins Caufield & Byers, who didn’t like the offering price. The two VC firms together held about 4.5m shares.
They must weight up the fact that there are about 243m shares coming out of lockup from November to February 14. It wouldn’t be a huge surprise if those VC firms decide to celebrate Valentine’s Day a few months earlier—especially since Google’s share price is now more than double its IPO price. That’s why they call it “smart” money.
But, they would also have to be “smart” in the way they sell those shares, which would increase by about 14 per cent the current 27m share float. The danger would be in depressing the share price if so many shares came onto the market at once.
In the last bubble (not that this is a bubble necessarily) the VCs took their money off the table when they could---while employees and small investors held onto their shares and suffered the consequences.
