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Should Google just become a VC fund?

From their 2020 annual filing, Alphabet generated almost $183 billion in revenue. Of that, 147B — over 80% — came from Google’s ads business.

In 2020, Google employed 40,506 software engineers, and 18,593 people across its research and development divisions. Roughly 59,099 in total. While the information isn’t public, we can safely assume that less than 5%, or 2,954 engineers, work directly or indirectly on Google Ads (Google Search, Youtube, etc.).

What if we took the 95% of Google employees and had them start their own startups? Groups of 5 employees create a startup, Google invests 5 * L3 salary of $190K USD (a conservative salary estimate) at a 2M valuation – giving them a stake of 47.5%. This would create 56144 / 5 = 11228 startups.

Raising money from a Venture Capital (VC) firm is extremely challenging. The odds of receiving an equity check from Andreessen Horowitz is just 0.7%, and the chances of your startup leading to a billion dollar company, a.k.a “successful”, after that are only 8%. Combined, that’s a 0.05% or 1 in 2000 success rate. If we apply that “success” rate here, 0.05% of 11,228 is about 6 multi-billion dollar startups.

If we assume an average 10B valuation for these 6 startups, Google has created 60B * 47.5% = 28.5B in value for their shareholders.

Another view: Google has created 6 extremely innovative companies with huge trajectories.

Seems pretty smart to me.