Warren Buffett’s Invaluable Advice Helped Google Go Public, But He Never Invested

Warren Buffett played a key role in taking Google public in 2004, which resulted in Google becoming a nearly $2 trillion giant today. Shocking, despite having clear visibility of Google's business model and future road map at a very early stage, Buffett missed the bus by failing to invest in the internet giant.

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Alphabet Inc., Google’s parent company is ranked among the world’s top 10 most valuable publicly traded companies with a market capitalization of nearly $2 trillion. But only a few people are aware of the fact that both Sergey Brin and Larry Page, the co-founders of Google, were hesitant to take their company public. It was only after they met with Oracle of Omaha, Warren Buffett, they realised that listing their company on the stock market will open the floodgates for enormous growth opportunities.

As one investor told it, Brin and Page agreed to go public only after meeting Warren Buffett, the legendary American business mogul, who introduced the two young founders to the dual-class stock structure,” wrote Mike Isaac in his book titled, “Super Pumped: The Battle For Uber“.

Isaac reported that Google’s cofounders were reluctant to list the company because of their limited understanding of the complex structure and procedures required to list a company in the stock market. They also feared that know-nothing investors would dictate terms, and press them to make changes in case growth slows. After understanding their reservations and concerns Buffett suggested that must follow a strategy that not many tech companies were flexible doing at that time.

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Buffett suggested the duo to issue two types of shares to ensure they retained control of the company.

The internet giant issued “Class A” shares with a single voting right attached when it went public in 2004. On the other hand, its cofounders hoarded “Class B” which allows 10 voting rights each, to ensure their decisions wouldn’t be turned down and they remain in the driving seat of their company.

Similar to Buffett’s Berkshire Hathaway, “Class A” shares carry one vote, while “Class B” shares have 1/10,000 votes per share. Buffett owns 31.5% of Berkshire voting rights from nearly 239,000 “Class A” shares he owns despite owning only a 15.8% economic stake in the company.

Page and Brin explained the dual-class stock structures in their founders’ letter to investors before Google’s listing. Their missive was titled “An Owner’s Manual for Google Shareholders“.

“Much of this was inspired by Warren Buffett’s essays in his annual reports and his ‘An Owner’s Manual’ to Berkshire Hathaway shareholders,'” the pair wrote in a footnote, tipping their hats to the Berkshire boss,'” the duo wrote in a footnote, praising the ‘Oracle of Omaha’.

But that was not the only time when Google followed Warren Buffett’s invaluable advice. A close look at the 2015 restructuring that Google went through and ended up creating a holding company, Alphabet Inc. reveals that Buffett’s 12 years old advice was once again played a crucial role in structuring the new company.

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Page, Brin, and Eric Schmidt, the former Google CEO, had visited Buffett for several years and realised that replicating Berkshire’s decentralised and autonomous structure would help them scale up their business.

Buffett Missed The Greatest Opportunity

Despite being engaged with Google since the early years, the world’s most renowned investor and billionaire Warren Buffett never invested in the company, and he regrets it as well. In May 2017, while talking to CNBC, he admitted that not investing in Google despite having clear visibility of the moat was a mistake.

In the past seven-year, Google’s parent company Alphabet gave five-fold returns to its investors. It means that if Buffett had invested $1 billion at the start of 2013, he would have reaped nearly $5 billion by now.

What’s even more hilarious is the fact that such a visionary investor missed the opportunity to invest in Alphabet Inc. not just once, but twice. Between 2000 and 2004, when Page, Brin, and Eric Schmidt visited Buffett for advice on public listing, Buffett had great visibility of the business model and road map of Google. Between 2013 and 2015, once again Buffett got an opportunity to cut a great deal with Google’s management when the company remodelled itself into Alphabet Inc.

But, as it’s been said and believed widely, you win some, you lose some!

If Page, Brin, and Eric Schmidt haven’t approached Buffett, it’s difficult to say what size of state Google would have been today. As a majority of investors believe that for any entrepreneur timing to take the company public is the most important factor, Page and Brin were clearly not willing to go public in 2004. If Buffett had not ironed out concerns of the duo, then they must have delayed Google’s public listing. And, in such a situation whether Google could have reached the helm, is another debate for another time.

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