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October 05, 2004

Early investors in Google rake in large profits

Venture capitalist Michael Moritz made a large profit from the Google IPO. But, Moritz says you're only as good as your next investment.

On the homepage of Google, the world's most popular internet search engine, there is a button marked "I'm feeling lucky". It could almost have been created especially for Michael Moritz.

Michael Moritz received a gigantic return on the $12.5 million he invested in 1999.

The Welsh, California-based venture capitalist has just received one of the largest payouts from a dotcom company, thanks to the fabulously canny investment he made when Google was a fledgling start-up whose staff organised meetings round a ping-pong table.

When Google floated in August, its initial public offering raised $1.67 billion and its early investors, according to financial commentators, were rewarded with "the biggest pay-off in venture history".

Moritz received a gigantic return on the $12.5 million he invested in 1999 on behalf of his employers, Sequoia Capital, whose nine per cent slice of Google is now worth $3 billion. Google itself is today valued at around $33 billion.

Moritz is too modest to say how much he has made personally from the sale - he is reported to have received up to $280 million in cash, plus stock worth more than a $1 billion - although he dismisses reports he is now a billionaire as "wickedly overstated".

But it is clear that he has amassed a fortune, at least on paper, which has catapulted him high up Britain's rich list.

The 'maniac devotion' of Google founders Larry Page and Sergey Brin (right) persuaded Moritz to invest. "I don't want to talk about how much I'm worth," he says, with a smile, at the pristine offices of Sequoia Capital in Silicon Valley, where he has worked since 1986.

The former journalist is feted in investment circles for the acumen that led him to back not only a winning horse named Google, but a host of other technological successes, including Yahoo!, whose potential he clocked in 1995, when few people understood the growing importance of the internet.

Sequoia's sleek, sun-drenched wood- and glass-panelled HQ, with its airy meeting rooms and scribbled-on whiteboards ("Americans can't even speak without using a whiteboard," says Moritz) sits in the middle of a tree-lined business park and is a long way from Cardiff, where he was raised by German- Jewish refugee parents. Back then, he recalls, the closest thing to an entrepreneurial role model was "a local guy who ran a fleet of hot dog vans and wore jeans and a blue blazer".

But after attending Howardian High School in Cardiff, where he was head boy, Moritz read history at Oxford, and began to get a sense of what he wanted out of life.

"What I did know was that I did not like not having any money," he says. "My family were comfortably middle class, but I remember looking around central London and, suddenly, my horizons were opened very wide."

He caught the journalism bug while editing the university's Isis magazine and set his heart on a career in Fleet Street.

In the hope of securing a job at The Daily Telegraph, he was invited to meet the newspaper's then editor, W F Deedes, one rainy afternoon in 1976. The meeting proved to be a crucial moment in Moritz's life: though it did not lead to job on the paper, it set him on his way to a new career as an investment wizard.

"I was telling him about an opportunity that I had to go to America, and I was wondering whether to accept it or not," recalls Moritz. "It was just a half-hour chat and was, I'm sure, the least consequential thing he did on that particular day of his life.

"But for me, it was one of the most consequential encounters I ever had, because he said to me: 'If I was a young man in your shoes today, I'd go to America and not look back'. His advice was a big part of the reason I moved to America."

And so, after business school in the United States and a spell working for Time magazine - which he quit when the frustrations of "a large corporation with too many constraints" became too much - Moritz headed for Silicon Valley.

"I just loved it," he recalls. "I'd never seen anything like this place, where all these 25-year-olds were starting companies."

He began knocking on doors, but his lack of experience prompted firms to "look askance at my mongrel-like background". Luckily, one man was impressed: Don Valentine, founder of venture firm Sequoia, gave him a job. "I only qualified because of the minority hiring programme," jokes Moritz, modestly, in a British accent that betrays few hints of the years he has spent in America.

Energetic, yet enormously composed, Moritz, a trim 50-year-old with rimless, round glasses and cropped, greying hair, has remained unmoved by "all the hoopla" surrounding Google's flotation, dismissing it as "nothing more than a sideshow".

"I understand why everybody's fascinated with it," he says. "But it's not as if it was a big surprise. It's something that's been coming for a long time."

He says he is not particularly excited by the company's rising stock price (which is up considerably since its $85 debut) and refuses to see it "as a barometer of the health of the company", cautioning that its waverings can represent "a major emotional distraction for employees".

The story of Google's success is breathtaking, emerging as it did from the carnage of the dotcom crash to become a tool used by millions each day and a brand so ubiquitous it has entered the dictionary.

Moritz puts its ascendancy, in part, down to the "fabulously disciplined" approach of Google's founders, Larry Page and Sergey Brin.

The two were Stanford graduates in their mid-twenties when Moritz met them. Their "manic devotion" to their business persuaded him to invest $12.5 million at a time when the firm had only a dozen employees.

The decision was made during "the hurricane that was 1999, when lunacy and madness were in the air and good reason had been temporarily set aside", Moritz says.

But he was convinced by the product's potential and its "fabulous" name, a play on the word "googol" - the number one followed by 100 zeros.

"Just like Apple, just like Yahoo!, people dismiss it and say it sounds trite and silly, but it has one great virtue: once you've heard it, you don't forget it."

Other investors shied away because of the "free" nature of the service Google offered, but Moritz saw parallels with the captive audiences of television and radio and the huge advertising revenues that they attracted.

He remains, however, staggered by its success. He slowly shakes his head when asked if he foresaw it. "Every time one of our companies experiences tremendous good fortune, we are as astonished as the next person."

Rivals are dazzled by the steely nerve that informs Moritz's "leaps of faith", and enables him to detect markets as they emerge. One fellow venture capitalist admitted recently he was "amazed at Mike's ability to see value where I can't".

Moritz says his decisions are part instinct, part analysis. "It's a perpetual test of your mettle because it doesn't matter about all the investment successes you might have had yesterday, it's about the climb up the next peak."

Moritz, who lives in San Francisco with his wife, American novelist Harriet Heyman and their two teenage sons, has little time for the "distraction" of extravagant acquisitions and says his wealth hasn't changed his lifestyle.

"It's not as if on a day a company goes public, a whole set of Brink's trucks pull up at the front door and spill gold bricks on to your porch. It's only paper."

He owns a house in Tuscany, where he enjoys painting, but has no desire to retire and buy a football team just yet. Instead, he prefers to stay "very focused on what we do here". Despite celebrating his 50th birthday recently, he isn't thinking of slowing down.

"I have one partner here who is 74 years old and another who is 71," he says. "This is a business where you have to stay youthful in temperament. It's about having abiding and great belief in the ideas of people who are 24 and 25 years old, and that's a very stimulating environment.

"Wealth makes a few things a lot easier, but it does not have that much of an effect on your life. It means you don't have to worry about spending 100 bucks in a bookstore or jumping on an aeroplane. But you can only eat so much in a day."

Source: Telegraph.co.uk

Posted by nakul at October 5, 2004 12:37 PM | TrackBack
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