Why does Google need outside investors? Is it a play to get a “serious” valuation since it would be vetted by outside parties?
I guess Im questioning why Waymo doesn’t just IPO, or raise 100% private raise by Google.
I guess Im questioning why Waymo doesn’t just IPO, or raise 100% private raise by Google.
There are many reasons why a conglomerate like Alphabet doesn't want to hold all of that directly on the balance sheet, which is why Waymo is run as a subsidiary with its own sources of capital.
When I was at Uber 10 plus years ago and we were ideating autonomous vehicles. The general consensus was that we would run the technology platform and private equity would own fleets of cars built and operated to our specification.
Waymo has concluded either we are too early in the journey to decouple the tight vertical integration or they want to go very big and own all of the capital expenditure for what will presumably be a global rollout ultimately.
For anyone like me with a finance and technology crossover interest I actually think this is as interesting, maybe more interesting, than the private equity play around data centers at the moment because all of that is constrained against chip delivery and power constraints.
Also, keep in mind the Alphabet doesn't fully own Waymo. I don't know the percentage ownership of hand, but that also feels like it's probably a prorated investment based on ownership so Alphabet doesn't reduce its voting control.
That's what I'm talking about.
My finance people care about the cents, a ROI of 7% is average but at 8.5% and now you are a world class asset of that inventory type. That’s sometimes the difference of a few hundred k out of 20m but they would not take the deal if it is slightly over due to their risk appetite.
The 3b external either matters a ton to fit their risk models OR they are doing a favor to an outside party. Probably a bit of both.
Obviously you're entitled to your view, but I don't think it's that kind of finance model right now - it's far too speculative and the upside too unknown to be adjusting for small amounts on risk models.
They have made many comments over the years about this too.
I am not claiming a transition is happening in this round, so asking for evidence of one misses the point. Transition here means enabling future shifts in who owns and operates the capex, not changing the cap table today. If Alphabet wanted permanent full-stack ownership, an entirely internal recap would have been cleaner. Bringing in outside capital, even minority, is about signaling and optionality, not dilution.
If you'll notice, all I am doing is asking the brigade of snarky know-nothings to stop talking. I'm not pretentiously claiming to know, unlike all of you. You clearly aren't in any position to understand the internal working of Google, and it's unfortunate that HN used to be a place where a question like the original one would have been answered by a person who does, but is now flooded with people like you. I will gladly take the downvotes if they're from a bunch of garage band stock pickers.
You are not “just asking questions.” You are dismissing any analysis that is not insider gossip as illegitimate, which is a convenient way to avoid engaging with the substance. No one claimed NDA level insight. We are talking about incentives, capital structure, and signaling, which is literally what outsiders analyze. If only Googlers are allowed to reason about Google, then HN has no purpose beyond rumor laundering.
(You)
> Nobody is being rude to you
(Also you)
I guess things are only rude if they're said to you, and not by you? Seems logically consistent with all your other takes.
Sorry no advice for you but relax and step back!
Private equity, or private capital (debt investors)? Although I guess PC was less of a thing 10 years ago.
Can you tell us those reasons? I think this is basically _the_ question.
Giving firms that they get along well with (like Sequoia) allocation feels like a mix between a favor and possibly a way to signal that the valuation has some external buy-in too.
This lets them validate their valuation and build a base of investors who could play a bigger role in writing chequew in the future. When IPO comes, those factors make the sell simpler.
There's also a strategic partnership angle in these rounds. For example, Magna and Autonation were early investors in Waymo. Magna operates Waymo's factory in Arizona to upfit their vehicles with sensors, Autonation (the huge dealership/service network) is the maintenance partner.
In general, the Alphabet playbook is that projects "graduate" out of Google X, and are expected to operate as a standalone company, including being responsible for raising funds.
Isn't that what they are kinda doing? 13bn out of the 16bn is coming from Google itself.
I think the reason they are taking 3bn from outside high-profile investors is to validate the valuation, for legal or accounting reasons.
Why not 100% internal funding, not sure, but the reason why companies don't always IPO is because taking on debt is more efficient (i.e. it's cheaper in terms of cost of capital) than equity, because of the "tax shield" effect, debt can be raised in a non dilutive manner, and a few other (less important) game-theoretic reasons.
He raises a good point, and the answer is likely that they can run into legal issues by either under or overvaluing the company in a capital raise where they're the controlling shareholder, then the IRS or existing investors have grounds for a lawsuit (or audit). They likely just want to bring the capital raise out in the open to get a fair market value, and then they will be 90% of the capital in the raise.
i.e. why should I use my money if I can use someone elses'?
That's the price for infinite scaling. If a business can't make more than that it should be shut down.
i.e. do you want to make 25% of 1 billion or 5% of 1000 billion?
institutional finance is america's most powerful lobbyist. in the sense of the fund managers, the little RIAs, the grandmas holding SPY. they ARE the voters.
so to me, aside from making money, making money this way, for a lot of people, protects them from the political grandstanding and their fast demise in their absence.
This. They're letting wall street in on it so wall street goes to bat for it. It's the big boy version of how some widget manufacturer will revise a product to necessitate or cut out a trade lobby depending on whether they want those people to go to bat for it, or make all the people who don't wanna pay rent to those people go to bat for it.
And it will be 100% the kids fault, but the headlines will look terrible.
Kids can be naive and reckless, and the result makes them look downright suicidal with the things they do. They will dart into traffic, and even if the Waymo has single-digit millisecond reaction times, people will still blame the Waymo.
I wouldn't be so certain on the fault front. I share the SF streets with Waymos on the daily, and they are extremely far from perfect drivers.