Google IPO banker tracks two-decade journey from Silicon Valley upstart to $2 trillion

20.08.2024

Twenty years ago, when Morgan Stanley banker Michael Grimes was helping to lead the highly anticipated IPO for the company behind the Google search engine, he was among the first to be offered a new email service. Given the chance to choose any username, he requested [email protected].

However, Google’s co-founder Sergey Brin intervened. Grimes recalls Brin telling him, “Oh no, you don’t want that. Gmail is going to be huge. You’ll be spammed endlessly.”

Grimes later told CNBC that he does regret not taking that email address. Nevertheless, the Google IPO solidified his reputation as “Wall Street’s Silicon Valley whisperer” just as the tech industry was beginning to transform global investing.

Reflecting on the IPO, which has seen Google’s stock increase by 7,600% over the past two decades, Grimes described it as “momentous.”

The cumulative market value of the companies Grimes has taken public is now in the trillions of dollars. While some of these IPOs were more challenging, like Facebook’s in 2012, and others introduced innovative new structures, like Spotify’s direct listing in 2018, Google’s IPO was truly groundbreaking.

“It marked the beginning of a new era,” Grimes said. “Google [and other tech giants that followed] fundamentally changed how we work, live, and play. They did so in ways that were far bigger than any of us imagined, and today, these companies are worth trillions of dollars.”

Now part of Alphabet, Google’s parent company, the tech giant is valued at over $2 trillion. No longer just a search and advertising company, Alphabet’s business has expanded to include YouTube, Pixel smartphones, cloud computing, self-driving cars, and generative AI, among other ventures. The company has become so dominant that the Department of Justice is reportedly considering breaking it up.

Alphabet was not immediately available for comment.

When Google went public 20 years ago, the tech industry was still recovering from the dot-com crash of the early 2000s, and investors were cautious. Instead of a traditional IPO, Google opted for a Dutch auction, a process intended to democratize the IPO by allowing a wider range of investors to participate.

In their IPO letter, the founders wrote, “Google is not a conventional company. We do not intend to become one.” They also introduced Google’s “don’t be evil” philosophy.

Grimes explained that Brin and co-founder Larry Page wanted a fair playing field for their IPO: “Their perspective was: If a young engineer sold some vested stock from Cisco or wherever and wants to invest $10,000 in Google, why should she be told she can only get $500 worth or nothing? Especially if she’s willing to pay one dollar more than an institution.”

Grimes added, “The auction allocations were determined by price and size, not by who you are, and that was the fundamental breakthrough.”

Although some banks and institutions warned Google’s founders against this unconventional approach, others, including Grimes’ team, supported it. Winning the coveted “left lead” position on the IPO was and remains highly competitive. The Morgan Stanley team embraced the auction format, built a prototype, and tested it for a billion bids.

For the roadshow, they split into three teams: Brin, Page, and CEO Eric Schmidt each led one.

The IPO was widely regarded as successful. Google overcame a weak IPO market and an untested offering model to achieve a strong first-day return and a market capitalization of over $27 billion. From there, the stock continued to rise.

However, it took more than a decade for the principles behind Google’s IPO to catch on. Consumer tech companies like Facebook (now Meta), Twitter (now X), and LinkedIn (now owned by Microsoft) initially opted for traditional IPOs. Yet, several high-profile IPOs between 2019 and 2021 incorporated elements of Google’s democratizing approach. For example, Airbnb offered hosts the chance to buy shares at the IPO price, Uber and Lyft made shares available to their drivers, and Robinhood gave its customers access to its IPO.

Assessing the legacy of Google’s “don’t be evil” mantra is more complex. Grimes declined to comment on the current state of Google, citing his inability to discuss clients.

Today, Google faces accusations of stifling innovation from U.S. and European regulators. And while the company remains at the forefront of the generative AI revolution, its core business of search and advertising is confronting its most significant existential challenge in decades.