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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
by pm90 8mo ago
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.
- andsoitis 8mo agoCompanies raise money for big projects all the time. From issuing debt, to issuing equity.
- kolbe 8mo agoHe's talking specifically about Waymo's situation. Alplabet, a company who has $75bn of FCF, owns 80% of Waymo. A $16bn capital injection is meaningless to Alphabet, so he's wondering why they're going through the trouble. 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.
- dotBen 8mo agoIt's a very capital intensive operation given the amount of vehicles that need to be carried on the balance sheet. 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.
- kolbe 8mo agoAlphabet is providing $13bn of the $16bn raise. What are you talking about? Do you really think that $3bn matters in the slightest?
- dotBen 8mo agoWhat I'm talking about is that is still considered an external capital raise for the purpose of the markets and where those assets sit on the balance sheet. 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.
- spyckie2 8mo agoThis is why you are not the finance guy. 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.
- dotBen 8mo agoWell, given that it is an equity sale, split still feels like it is the prorated amount so that alphabet continues to own its percentage - not more not less. 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.
- infecto 8mo agoYes and what matters the most is what Waymo has been signaling for years. They don’t want the capex (owning and running the physical cars). I don’t know the intent of this raise but you have to realize companies may have a good asset but they don’t want to own it 100% for a multitude of reasons. Some of them could be as simple as wanting to get other investors involved and comfortable with the asset to maybe take on larger roles in future rounds. Or in this case potentially running the car part of the business.
- 46493168 8mo agoWhy would you bet your own money when you could bet someone else’s?
- 2OEH8eoCRo0 8mo agoIf you are betting on a winner why split with others?
- minwcnt5 8mo agoAlphabet is only giving up around a 3% stake. They continue to own most of it, and mostly bet their own money.
- re-thc 8mo ago> Why does Google need outside investors? i.e. why should I use my money if I can use someone elses'?
- lurk2 8mo agoIf you use someone else’s money you have to pay him back with interest or equity.
- re-thc 8mo ago> you have to pay him back with interest or equity 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?
- lurk2 8mo agoThe point the great-grandparent is making is that Google could comfortably finance the project itself and make 100% of the upside, not 25% or 5%.
- re-thc 8mo agoAnd the point here is borrowing more money increases available funds for bigger rewards. Google can fund 1 Waymo but not an infinite amount of them.
- kolbe 8mo ago[flagged]
- notyourwork 8mo agoThis reply also falls in the category. It’s easier and faster to downvote poor responses and move on.
- kolbe 8mo agoNot when there's three like-minded accounts upvoting each other.
- infecto 8mo agoThere were pretty good responses so far and the only people coming below the bar are folks like yourself. Time for some self reflection. Instead of complaining about comments on HN perhaps you should review your own behavior.
- irl_zebra 8mo agoI take that reply as a "bar raiser" that HN commenters should be better, not as a low quality/effort reply.
- perfmode 8mo agoa deliberate strategy to establish market-validated pricing, prepare for eventual independence, and impose governance discipline on what has been a protected moonshot project. The move signals that Alphabet is transforming Waymo from an “Other Bets” science experiment into a standalone asset with credible external valuation—likely positioning for an IPO within 2-4 years once profitability arrives.
- philipallstar 8mo agoI'm not sure how useful this pricing is for the future, as waymo is currently operating on semi-infinite Google money. If that stops, no doubt the price would change too.
- perfmode 8mo agoThe counterargument would be that the external investors (Sequoia, Andreessen, Fidelity, etc.) presumably priced in this exact risk when they agreed to pay $110B. They're not naive about Alphabet's role as backstop. The question is whether they believe the "semi-infinite money" assumption is durable enough over their investment horizon.
- ra7 8mo agoYes, it provides external validation for the valuation. Otherwise, Alphabet can simply "self value" Waymo at a funny amount like $1T. 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.
- JumpCrisscross 8mo ago> why Waymo doesn’t just IPO, or raise 100% private raise by Google 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.
- doctorpangloss 8mo agoa little kid is inevitably going to get killed by a waymo. 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.
- cucumber3732842 8mo ago>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. 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.
- glitchc 8mo agoUnfortunate but true. Just as true as human drivers doing the same. No technical system guarantees a failure rate of zero.
- seanmcdirmid 8mo agoThey need at least one fatality before you can start going down that slope, but probably true comparing how many kids get killed by human drivers, Waymo can’t be so safe as to avoid these incidents if they scale up in numbers.
- Sohcahtoa82 8mo ago> a little kid is inevitably going to get killed by a waymo. 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.
- 8mo ago
- stackghost 8mo ago>I guess Im questioning why Waymo doesn’t just IPO, or raise 100% private raise by Google. 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.
- josefx 8mo agoMoney from Google internally might be subject to internal power dynamics and come with strings attached. Having reliable outside funding from people who don't get a say in things might be a better alternative for a project that doesn't want to end up as Stadia 2.0 .
- minwcnt5 8mo agoI think some of the external investors have board seats, so the outside people do get a (small) say in things. And to your point, that's probably also a good thing for avoiding another Stadia mistake.
- echelon 8mo agoGoogle Genie would have disrupted Stadia anyway, fwiw.
- josefx 8mo agoI think it will be quite some time before you can prompt Genie for the next GTA, Skyrim or Call of Duty.
- buellerbueller 8mo agoWhy risk your own money, when you can risk others'?
- raincole 8mo agoRich people and big companies buy insurance too.
- plantain 8mo agoI also wonder this - my best theory is getting institutional buy-in from all corners will help with the regulation going forward.
- tsycho 8mo ago>> or raise 100% private by Google? 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.