The Worlds Greatest Angel Investment: Google
Tracing the development of a university graduate research project that later moved on to become Google, a multi-billion pound corporation employing over 20,000 employees worldwide and now controls over 68% of searches made worldwide over the internet and has now indexed over one trillion pages on the internet– one thing is clear - Google is big.
Though there are many articles listed on the internet about how Google was formed, and all of the technical aspects of Google’s growth, there are surprisingly not many articles around the investment aspects of Google and the Angel investors that were involved with Google at its earliest stages.
Google is now a household name now and Google's IPOs and stock prices have made Google one of the largest companies in the world. Thoughts turn to the angel investors that were involved from the beginning. Looking back, one comes across the name Andy Bechtolsheim known as the 'Golden Boy' of Google and another man, perhaps less well known, Ram Shriram that was credited with bringing his extensive knowledge to the table.
We need to take a closer look at this angel investor to know whether he profited from his investments or not from the Angel Investment that was worth $2.5 billion in today’s value.
Though there were quite a few investors involved with Google and that to at various stages after much research the one angel investor that stands out is Ram Shriram. In fact, Ram Shriram accomplishment left such a big impact that he is in fact one of the main inspirations behind Venture Giants.
In the UK today, when you think celebrity investor – Dragon’s Den appears to be what the majority of people come up with – or Sir Alan Sugar etc. Though these investors are very influential in the UK due to their hit TV Shows, perspective is important, and relatively speaking are not very wealthy when compared to investors that you may not have heard of.
One such investor is Ram Shriram and we hope that after reading this article on Venture Giants, Investors like him will get the recognition they deserve.
Ram Shriram joined Google in its nascent days. Shriram had an envious resume and was believed to be the angel investor with the Midas touch. Prior to joining Google, Shriram was Vice President of Business Development at Amazon.com and reported to its founder and CEO Jeff Bezos.
While in Amazon, Shriram was responsible for increasing the customer base from 3 million to 11 million. Prior to this he was with Junglee Corp which was acquired by Amazon in 1998 and before Junglee, Shriram was a member of Netscape Communication’s executive team. He was largely responsible for building market share and managing hundreds of people across all the three continents of North America, Europe and Asia and produced more than half of Netscape's $346 million annual revenue. A year down the line Shriram was overseeing OEM and sales function of Netscape. He helped generate over 100 million in revenues by way of increased Netscape website traffic. Shriram is on the board of Elance.com and Yodlee.com.
Ram Shriram has been ranked number 3 by Forbes magazine on the Midas List. According to an interview given to Heilemann for Business 2.0, Shriram, the man with the Midas touch is an easy going person but prefers to be known as “start-up sherpa” (sherpa – noun: a member of a Himalayan people who are skilled mountain climbers and are employed as guides for visiting climbers) rather than as an angel investor.
This might come as a surprise to us when it comes from the greatest angel investor of the World - but his success mainly comes from his unique take on business.
His company Sherpalo operates without staff or office. Shriram operates his company single handily without any infrastructure or institutional scaffolding. He enjoys being responsible only to himself financially. He has no big office with staff buzzing around him, though he admits that is indeed nice to have wealthy partners who can provide him and his business a cushion when needed.
He states that financial obligations to himself alone makes him comfortable and till date he has been practising it.
We are talking about the ‘Google God’, the original man who is believed to possess the Midas touch and turn everything he touched into gold.
His initial investment in Google was $100,000 - $200,000 (not publically known) but today he owns 2.8million shares in Google. He was the solo investor who netted 5.1 million shares in Google’s IPO.
While writing this article, each share of Google is worth $418!
5,200,000 shares * $418 on my scientific calculator reads error!
His resume is very impressive and his experience of having worked with top US firms prior to the dot com crash and afterwards has equipped him with the expertise to define his strategies.
So what type of entrepreneurs does the Google God like to invest in?
Ram ShriRam’s website clarifies that he prefers to invest in disruptive technologies.
Disruptive technologies are those that address a customer base and provide them with an answer (service or product) that is better than the existing one.
An example of a Disruptive technology is Mp3s to CDs. CDs changed the way music was enjoyed in spite of the base of tape recorders and record players (The Innovator’s Dilemma by Clayton Christensen, copyright 1997, Harvard College). The introduction of CDs forced people to invest in new hardware in spite of the existence of record collections and record players and Mp3s knocked all that on the head!
Ram Shriram is interested in investing in companies that are:
- Innovative and revolutionary ideas in consumer internet services
- Products with technology which have patent pending, as well as a commercial appeal which can change market positioning positively
- Business models which are creative and can make world an improved place
- Different and unique solutions to existing problems
- Team which can render maximum productivity with their vision and commitment.
Shriram prefers to invest in and concentrate in only three or four start ups. He personally checks them out in turns and is physically present in one of them on all days. He prefers to stay close to the scene of action.
His formula of business provides him with relentless independence which in turn leads him to freedom and success. He reinforces that his loyalties are towards the business and not to any particular associated constituents and hence he might take decisions which are good for business but might be contrary to the decisions of VCs.
Ram Shriram's conquests did not stop with Google and his winning spree includes many other companies currently and the companies in his portfolio now include:
There are some companies in his portfolio that have not benefited by the Midas touch. There are speculations as to whether a few failures can spoil the reputation and image of one of the greatest angel investors or sherpa of this time but needless to say, small failures will not tarnish the reputation of the greatest angel investor.
When your original investments yield more than 10,000 times profit and you have over $1 billion and still counting you are sure to be able to leave a legacy of success behind. If his portfolio companies continue to grow, one can imagine the legacy he would be able to leave behind. Ram Shriram has always avoided the spotlight unlike many high profile angels that we see and this could be another lesson that SHOULD be learnt from them.
Background on the greatest company of all time: Google
Google was formed by two graduate students at Stanford University called Larry Page and Sergey Brin in 1995. Their initial work revolved around trying to solve the computing world’s most complex problem: how to efficiently index relevant information from massive amounts of data stored on computers and then to return highly relevant results to search queries inputted by end users. At the time it was the equivalent of devising an automated way of finding needles from thousands of haystacks but in a fraction of a second.
The first step of Larry and Sergey’s Google journey was the creation of a search engine called BackRub which received its name because of its unique ability to analyze and rank a particular websites importance based upon the links that linked to it.
At that time, the search industry just did not have a strategy on how to rank websites in order of importance in search results. As an example, would you list the newest created websites first in the search results – or would you rank the websites that paid the most amount of money first?
Backrub’s revolutionary idea just made sense. If a website like the BBC was important than it would only make sense that dozens of other important websites would link to it – and websites that the BBC linked to would also have to be important or newsworthy and this is how the Google ranking authority for search results was created.
They continued developing Backrub further until they opened the pair opened their first office in Menlo Park, California in 1998 – eccentrically equipped with its own hot tub, washer, dryer and even an electronically operated remote controlled front door. At the time, the electronically opening door (remote control operated) was state of the art for an Office - and still is.
Not your typical early stage start-up, but the winning point about their offices was that there was no parked car in the middle of it to cramp their office space. Yes, Larry Page and Sergey Brin started their multibillion dollar company from a garage before the name Google even existed. From their shiny new office space they went on to hire their first new member of staff, Craig Silverstein who remains the Director of Technology in Google, today.
Larry and Sergey continued improving their technology, and later in the year went onto purchase a terabyte of disk space and constructed their own computer housings that served as Google’s first data centre. Surprisingly, a terabyte of storage is now available on Ebay for approximately £400!
Ironically, at that time, both partners had no interest in providing search solutions for the general public - instead they were keen to find licensees that were keen to take out license agreements for their search service. However, nobody was convinced about the power of their technology, and the major portal owners of that time, including Yahoo and Altavista (who were number 1 for searches on the internet – Alta- Who?), refused to engage with their search engine.
As an entrepreneur reading this article, one point must become apparent. If two university entrepreneurs can create a piece of technology in a garage that could later topple the world’s largest search engine of the time, leading that search engine into notoriety in less than ten years, what is an entrepreneur capable of now? If Facebook in 2004 was only a start-up project restricted to colleges and within 6 short years can now command a user base of 500 million, what can an entrepreneur create today that will make Facebook and Google obsolete by 2016? Some people may say – well a lot has changed now, and the barriers of entry are to big now? Well think; Twitter and all of the other websites out there today that are growing rapidly. Google for example in its beta stages was only handling about 10,000 search queries a day.
Milestone Year - 1999
1999 saw Google outgrowing their garage at Menlo Park and shifting to the new office at University Avenue in Palo Alto in February. Google had eight staff which was three times more than what it had during the initial days and was answering more than 500,000 search queries at this stage.
There seemed to be an increased interest in Google with Red Hat signing on as the first commercial search customer of company. The main attractive attribute of Google that lured Red Hat was running of servers on Linux operating system.
June 1999 was significant in Googles' growth as it secured second round of funding of $25 million from Sequoia Capital and Kleiner Perkins Caufield & Byers - two leading Silicon Valley venture capitalists. It was a convergence of opposites as the two fiercely competitive venture capital companies came together to give Google birth.
Seeing Eye to eye on the value of their investment, venture representatives took seat in the company. Mike Moritz of Sequoia and John Doerr of Kleiner Perkins (they are credited with growth of Sun Microsystems, Amazon, Yahoo and Intuit) joined Google's board of directors along with Ram Shriram, CEO of Junglee. During those days they would hold board meetings using the ping pong ball table as their formal boardroom furniture.
Though Google at this time was liquid, the staff and personal hired ensured that the best minds in the industry were operating under one roof and that to in a highly conducive environment that encouraged free thinking.
Staff hiring increased gradually with key hires including Omid Kordestani who resigned from Netscape to accept the post of Vice President of Business Development and Sales and Urs Holzle who left UC Santa Barbara to become Vice President of Engineering from Google – however this growth of staff led to space constraints in Google HQ.
According to Google Folklore (‘googlelore’) staff had to tuck their chairs in, in order for another to stand up. As a result Google shifted its office to Googleplex, Mountain View, California which is remains its current headquarters.
By 21st of September 1999, around the same time of the move to the new office head quarters, Google ceased to be a beta search engine.
Google continued to grow, attracting clients, users, staff and press. Google evolved to 3 million searches per day and was selected by AOL/Netscape as their web search service. Clients like Italian portal Virgilio, Virgin Net (UK's on-line entertainment guide) began to sign up.
With these accomplishments, predictably a spate of recognitions followed, including being awarded a Technical Excellence Award for Innovation in Web Application Development by PC Magazine. Success led to success and Google began to feature in many 'best of' lists and finally appeared in Time magazine's Top Ten Best Cybertech list for 1999.
Milestone Year – 2000
At Googleplex there was a company work culture revolution taking place. In order to maximize flexible working atmosphere for improved productivity, rubber exercise balls were used for office chairs and the environment was strictly cubicle free.
This informal atmosphere which saw wooden doors held by saw horses acting as desks, on which perched fully powered computers, multicoloured lava lamps and large dogs like Yoshka, a Leonberger roaming the halls led to a comfortable work place proven to be highly effective in increasing the creative output of its employees.
Hiring of company chef, Charlie Ayers introduced staff to health conscious and energy boosting recipes. There were weekly roller hockey games in the parking lot and TGIF meetings by Larry and Sergey conducted in the office accommodating 60 employees. The free and informal atmosphere led to an easier exchange of ideas.
2000 saw certain improvements being made to the search engine along with the addition of services to Google like the Google Directory and in June 2000 Google became the world's largest search engine with a billion page index in searchable format.
Keyword targeted advertising program made businesses sign up for using Google search technology on their sites. The partnership between Google and Yahoo cemented the company's reputation which allowed them to soar to greater heights.
Google then announced subsequent partnerships with NetEase, China's leading portal and NEC's BIGLOBE of Japan.
Somewhat surprisingly, there never arose a need for additional rounds of venture funding as Google generated enough profits to grow organically.
Google had just begun with its commercialisation and the year 2000 saw the introduction of a self service ad program which could be activated with a credit card on-line – AdWords which is key to changing Google from a just an internet search company to an Advertising company. This is a shocking statement to most entrepreneurs! Google is not in sector computer software – instead it is an advertising company.
After all, 96% of all Google revenue comes through advertising from their search results!
A follow on article to this is The Best Investment in the World: Electricity which will demonstrate what Angel Investors had to go through in the cut through era of the second post industrial revolution. An overview and direct comparison on Google and electricity as an angel investment is: What is the best Investment in the World: Google or electricity?
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