Google: ETVC (Exchange Traded Venture Capitalist)

I love technology and finance way too much. I also love Google’s business model and had the following conversation with a few different people, so I decided to write it down. If you didn’t know, Google is the world’s first exchange-traded venture capital firm. I let you know how in a conversation with the halfway fictional character John below…

John: “I just got out of a meeting with my financial advisor, he put me into some solid ETF’s that give me broad exposure to the market.”

Me: “Nice, did he get you into some venture capital investments too?”

John: “Come on man I don’t have enough money for that! Plus who even knows how to get in those funds.”

Me: “I know a way.”

John: “What? You got some connection out west?”

Me: “No I just bought some shares of an ETVC.”

John: “Exchange Traded… Venture Capital? That exists? What’s the ticker?”

Me: “GOOG.”

John: “That’s Google, a public company haha your advisor must’ve been lying to you.”

Me: “Nope, I bought it myself.”

John: “Okay, then how exactly is this a venture investment?”

Me: “Well, when you buy a share of Google stock, you also buy into all its’ portfolio companies.”

John: “Google is a venture capital firm now? You high?”

Me: “Your stock broker didn’t let you in on this? Of course he didn’t, want to know why? Because he probably has never heard of Deepmind, Jet, Boston Dynamics, or Calico.”

John: “What are those companies? What do they do?”

Me: “Well lots of things from making robots to giving you cheaper ways to buy things, but that’s not really important right now.”

John: “So what do they have in common?”

Me: “They all have been invested in by Google.”

John: “What! Google is an internet company! You don’t know what you’re talking about man.”

Me: “Sure they are, but that’s not all they do. Google’s web services like Youtube and Search make up large portions of the company’s profits, but this allows them to invest hundreds of millions of dollars into moonshot, and pluto-shot, companies that they think will someday change the world.“

John: “Okay so they invest their money and acquire companies, don’t other companies do this all the time? What makes Google special?”

Me: “Well sure they do! But they don’t do it like Google does. Most companies acquire companies that relate to their immediate business. Google invests in everything. I mean everything. Robots, algorithms, coffee, healthcare, transportation and messaging to name just a few.”

John: “Hmm okay this sounds like some company my Dad used to talk about…”

Me: “Oh it is! Does the name Berkshire Hathaway sound familiar? The conglomerate whose stock has yielded one of the highest returns of all time?”

John: “Yeah okay sure but Berkshire invests in businesses that are profitable and mostly publicly traded. Google invests in things that don’t make money and are private. You sound like my nephew who keeps trying to start some company that won’t be profitable for years. My Uber is almost here I gotta go.”

Me: “Glad you are supporting Google!”

John: “What?”

Me: “Oh you didn’t know? Google owns stock in Uber.”

John: “Seriously? I use that all the time, I thought you said Google’s investments aren’t profitable.”

Me: “You are correct sir Uber is not profitable, but some of their investments are profitable, either way that’s not their strategy. Google funds companies that have potential to bring serious value to the world. Value now, profit later.”

John: “So what does this do for their stock price? That’s what I care about. I’m trying to retire before I’m ninety and with all this student debt… well you know let’s just say I want my money to grow. Not just change the world”

Me: “Of course, well you see whenever one of these companies goes public, or is acquired, Google as a company is headed for a massive payday. So not only do you get the solid revenue the search giant pulls in every year supporting the company, but you get bursts of cash from massively valuable companies going public or being acquired.”

John: “So how has this affected their bottom line so far?”

Me: “Google’s venture capital arm, Google Ventures, has formally been around since 2009, and most of their investments, while on paper are worth tons of money, haven’t exited yet. This leaves an enormous potential for profit that could drive the stock price through the roof.”

John: “Why doesn’t anyone mention this? I don’t get it, my advisor never let me in on this!”

Me: “Because venture capital is a myth outside places like Silicon Valley, New York, and Austin. People don’t understand it because it is complicated, opaque, and when done poorly, risky. Financial analysts are concerned with current quantitative value more than moonshot value. Most see a search company, people in the industry see a venture capital firm with its cash cow being information services.”

John: “Alright I really gotta go I’ve already missed two Ubers but explain what you mean moonshot value.”

Me: “Moonshot value is something that a financial analyst can’t even begin to factor into a companies forecasted bottom line. An example is Google’s portfolio company Calico. Calico is focused on genetics so let us just imagine that Calico finds a way to extend human life by 10 years tomorrow. Great right? Well not only will whatever drug or procedure invented by Calico make Google an exuberant amount of cash, but that’s also 10 more years that Google will be able to profit from its users of all its other services. You can’t really quantify a company like Calico’s value now, but you can understand that if any one of Google’s moonshot companies hit something astonishing, Google’s value will skyrocket.”

John: “Wow, I never thought about that. Alright, my Uber is here. I want to know more about this I’ll message you on Slack later after I talk to my finance guy.”

Me: “Ahh yet another Google product. See you on Slack.”

Long story short, you want a diversified portfolio of companies that just might change the world and your net worth? Buy GOOG. (Or GOOGL if you want to vote on things.)

— Hayden