[dotBen]

It'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.

[alooPotato]

> There are many reasons why a conglomerate like Alphabet doesn't want to hold all of that directly on the balance sheet

Can you tell us those reasons? I think this is basically _the_ question.

[UebVar]

"Tech" was incredible light on CapExp compared with everything else (until AI hit, that is). That is what allowed its explosive growth. On the one hand alphabet is not used to that. On the other hand it is turning into a more normal business with more CapExp, and like other more "normal" business it uses more external investment. As a general rule of thumb: The more capex, the more leverage; for example commodity extraction, infrastructure or power generation are very capex heavy, and heavily leveraged.

[alooPotato]

Right but thats usually debt, not equity financing.

[BoorishBears]

I disagree with their reasoning and would say it's more for strategic benefits.

Giving firms that they get along well with (like Sequoia) allocation feels like a mix between a favor and possibly a way to signal that the valuation has some external buy-in too.

[loeg]

> 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.

Private equity, or private capital (debt investors)? Although I guess PC was less of a thing 10 years ago.

[kolbe]

Alphabet is providing $13bn of the $16bn raise. What are you talking about? Do you really think that $3bn matters in the slightest?

[dotBen]

What 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.

[infecto]

Yes 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.

[bryanlarsen]

By investing $13B of the $16B they're signalling they do want the capex, at least for now.

[infecto]

If they truly wanted the capex, this would not be a mixed round A fully internal recap would have been simpler. The presence of outside capital, even minority, is consistent with a gradual transition toward shared ownership, asset light structures, or operator partners.

They have made many comments over the years about this too.

[kolbe]

What gradual transition? Alphabet's ownership percentage is unchanged.

[infecto]

Notice I left a list of potential reasons. Not that ownership has changed. Just pointing out for folks like yourself that Google has made commentary about this exploring the idea of partnering with companies that operate the physical fleet. $3bn even if chump change for you is still a larger placement and has some level of signaling indicating the want to get other folks involved at some level.

[spyckie2]

This 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]

Well, 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.

[throwmeaway820]

three billion here, three billion there, pretty soon it begins to add up to real money