How Warren Buffett Convinced Google's Reluctant Co-founders To Go For Its IPO In 2004

More than $1.5 trillion. That's the massive market cap that Google's parent company Alphabet has at present. But just imagine a world in which Google was a smaller private company instead of the tech giant that it is today. Surprisingly, it had almost happened.

What Happened Before Google Went Public?

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Before Google's IPO hit the market nearly two decades ago, its co-founders Sergey Brin and Larry Page were hesitant to go public because they feared that sharing control of the company with shareholders would force them to do things they didn't want to do.

But all it took was a chance meeting with Warren Buffett to change their minds.

Also Read: Why Warren Buffett Lives In The Same House That He Bought In 1958

How Did Warren Buffett Convince Google's Co-founders?

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When Google co-founders met the Oracle of Omaha and talked about their reluctance, Warren Buffett explained the system of Class A and Class B shares he used at Berkshire Hathaway. Class A shares, owned by Buffett and some others, carry one vote per share. Class B shares carried only 1/10,000 votes per share. This means the company can sell shares to investors but remain protected from activist shareholders and hostile takeovers.

Even though such classes of shares were unusual in the tech industry especially back then, Brin and Page decided to use a similar structure. So when they launched their IPO in 2004, they modelled their stock structure on Berkshire's.

That revelation comes from the book Super Pumped: The Battle for Uber, by Mike Isaac, which came out in 2019 but is getting a lot of attention these days as the basis of a new Showtime series. Isaac, a longtime tech reporter for the New York Times, writes a lot about Silicon Valley in general in his book, as per an Inc report.

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In the case of Google (now Alphabet), A shares carry one vote, while B shares each carry 10 votes. Brin and Page between them own 51 percent of those B shares, giving them joint control of the company, even though they own less than 12 percent of its total shares.

Also Read: When Google Was Almost Sold For $1 Million

When Warren Buffett Was Also The Inspiration For Google¡¯s IPO Letter

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Brin and Page explained the dual-class stock structure in their letter to their future shareholders. In ¡°An Owner¡¯s Manual¡± for Google¡¯s Shareholders, Brin and Page state they modelled their letter after Berkshire Hathaway chairman Warren Buffett¡¯s essays in his annual reports and his ¡°An Owner¡¯s Manual¡± to Berkshire Hathaway shareholders. They freely admitted that the letter was largely inspired by Buffett's 1996 "Owner's Manual" for Berkshire shareholders.

Buffett, in turn, was ¡°very pleased¡± that Brin and Page were inspired by his work. At the 2004 Berkshire Hathaway annual meeting, Buffet, as per CNBC, said: ¡°It obviously pleases us enormously that other people think that it¡¯s a good idea to talk to their owners ¡ª or in their case, their prospective owners ¡ª in a very straightforward manner.¡±

In their letter, Page and Brin talked about their leadership philosophy and their concerns about the outside influence of shareholders. They wrote:

As a private company, we have concentrated on the long term, and this has served us well. As a public company, we will do the same. In our opinion, outside pressures too often tempt companies to sacrifice long-term opportunities to meet quarterly market expectations. Sometimes this pressure has caused companies to manipulate financial results in order to "make their quarter."

The co-founders went on to explain that they might take actions that they believed were in the long-term interests of the company and its shareholders, even though those actions might cause profits and share prices to fall in the short term. "We would request that our shareholders take the long-term view," they wrote.

Also Read: How Elon Musk Had Almost Sold Tesla To Google For $6 Billion

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