VCs are known for their curiosity, and right now their attention is fixed on Google. The Internet search giant expects to raise about $4 billion from the sale of 14 million shares, according to a regulatory filing. And the secondary offering has many consumer-focused VCs contemplating what the company plans to buy.
Google executives have said publicly that there are no acquisition deals in the works. But rumors have been flying that the Mountain View, Calif.-based company is about to buy VoIP provider Skype Technologies using the proceeds from the stock sale. Venture-backed Skype, meanwhile, is rumored to have already rebuffed an offer in the neighborhood of $3 billion from Google. The deal, however, would help Google compete against Yahoo, AOL and Microsoft, which are all expanding by offering VoIP features and messaging products.
Asked in an email about all the hubbub, investor Tim Draper of Draper Fisher Jurvetson, who’s a Skype board member, writes: “Telecommunications is a $1 trillion industry. Skype has the potential to be the leader of that industry, and to grow it. Skype is the communications platform of the future. It’s worth a lot to a lot of companies.”
Indeed, 3-year-old Skype last year raised $18.8 million, its third and most recent round of funding from investors DFJ, Bessemer Venture Partners and Index Ventures. Whether an acquisition is in the works should become apparent soon enough.
In the meantime, Google is moving ahead with its plans to bolster its cash reserves.
“I think they’re probably raising that money to invest in their core business, continue to build out their team and to recruit, and to build up their cash reserves to take advantage of opportunities that they might see,” says Tod Francis, one of Shasta Ventures founders and managing directors.
Tom Dyal, a founding partner of Redpoint Ventures, shares Francis’s perspective. “I view Google’s action as taking money while you can and building a balance sheet to help in the future to compete against Microsoft, versus a major strategy shift implying that they are going to go on a buying spree,” he says.
Noting that most of Google’s acquisitions to date have been at prices between mostly $10 million and $30 million, Dyal adds, “I’d love to see that change. I’m not sure that’s the case here, though, at least in the short term.”
Yet it’s not hard for all VCs to imagine that Google has a big trick up its sleeve, particularly when taking into account that Google was already sitting on almost $3 billion in cash at the end of June and that its high-flying shares were still trading at about $285 a share last week.
“I don’t think they’re raising the $4 billion just because they have a big acquisition in mind,” says Sharon Wienbar, managing director of BA Ventures. On the other hand, “If they were to do a major acquisition, it would have to be with cash, which makes the stock offering sort of interesting. Because of corporate governance issues and Google’s unique corporate culture, I can’t imagine that they would [make a major purchase] via stock.”
Regardless of Google’s impact on their own firms, most VCs have distinct ideas about where Google might shop next. Wienbar points to Google’s move last week to begin selling print ads, beginning with its purchase of ad pages in Maximum PC and PC Magazine – pages it then sold in parcels to nine small businesses.
“I could easily see them wanting to get into other ad networks beyond just optimized technology ads,” she says.
Wienbar also contemplates a “cross-border merger” that would enhance Google’s data content. “Google’s mantra is: We help you find everything. Maybe it would make sense for Google to add a big information store, like a giant credit bureau such as an Experian. The idea is for it to buy pools of other people’s content.”
Raj Kapoor, a managing director at Mayfield, also believes that Google could benefit by zeroing in on the more expert content of other companies. “Google is comprehensive but it may not have the answers you need,” he says. “Buying domain expertise that Google doesn’t necessarily have could make for some really good acquisition opportunities.” Kapoor also predicts an “entertainment” buy, such as “an aggregator of media,” along the lines of social networking site and new-music venue MySpace, which was recently purchased by News Corp.
Kapoor adds, “Google has many media applications in play, but not everything in their own labs will take the world by storm.”
Meanwhile, Shasta’s Francis predicts that Google will likely continue on its current path of absorbing smaller companies across an array of technologies that help it better leverage its ad and search business.
“Think hobbyist and photo-sharing websites, RSS and video feeds, video search, social networking,” Francis says. “I also think VoIP,” which Google recently added with its new instant messaging application. “Google is the cornerstone of people’s online communication; naturally, they want to be the cornerstone of their voice communication, as well,” Francis says.
Whether being the cornerstone involves Skype is something that the industry will have to wait to see for a bit longer.
In its typical, and somewhat ironic fashion, Google isn’t giving away any answers.