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Updated from 1 p.m.

A lower price tag on the


IPO is exposing some drastic differences among the company's early shareholders, but so far it isn't adding to the pain for downtrodden tech stocks.

Admitting that its early estimates were optimistic, Google Wednesday

lopped some 25% off the expected price of its initial public offering. The Net search engine said the amount of stock to be sold by existing shareholders would drop sharply as well. The company still hopes to have its stock in public hands by tomorrow.

The price cut represents a setback for all holders of Google stock, of course. But how various groups of insiders reacted to the reduction divides big Google holders into roughly three camps.

Some of Google's venture capital backers -- firms which had been slated to be the biggest sellers of Google stock after the company itself -- won't sell any stock at the reduced price. But Google's founders and top executives halved the amount they will sell, and some Silicon Valley rivals intend to sell just as much Google stock as they originally planned.

Meanwhile, the Nasdaq actually staged a late afternoon rally as investors shrugged off the latest installment of the Google IPO drama and sent some of their hard-hit tech favorites higher. The reversal, which puts the stock market on track for a fourth straight daily gain, comes on the heels of strong earnings reports from tech heavyweights

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Mixed Motives

Sequoia Capital and Kleiner Perkins, two of the heavy-hitting venture capital firms that invested in Google in its younger days, are selling none of their shares in the search engine company now that the company has cut the price range for its offering, Google indicated in its revised IPO filing Wednesday.

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Sequoia and Kleiner Perkins' choice not to sell likely reflects a combination of factors, says Rich LeFurgy, a venture partner at WaldenVC and head of the Archer Advisors consulting firm.

One element is the VC firms' desire to, as LeFurgy puts it, "do the right thing" -- that is, make it easier for other selling stockholders, such as Google employees, to sell all the shares they seek. Another is the firms' belief, fueled by their association with Google, that there is upside to the stock.

Still another factor likely at work, says LeFurgy, is that venture firms traditionally don't sell their shares in public offerings. "It's highly unusual in the first place that they're able to get the money out," he says.

Neither Sequoia nor Kleiner Perkins responded to requests for comment Wednesday.

The Silicon Valley firms, both of which have partners on Google's board of directors, had previously planned to sell a total of 4.5 million shares in the offering, or 10% of their collective holdings.

The shares that the venture capitalists aren't selling amount to nearly three-quarters of the 6.1 million shares that Google's selling stockholders have decided not to sell as the company has revised the expected price range of its offering.

Previously, Google had planned to sell stock in the range of $108 to $135 per share in its auction-style IPO. But, in a nod to weaker-than-forecast demand, the company on Wednesday dropped the expected price range to between $85 and $95.

While the total number of shares to be sold by insiders in the offering has dropped from 11.6 million to 5.5 million, the company itself still plans to offer 14.1 million shares. If all the shares are sold in the new range, Google and its backers will raise about $1.9 billion, not the $3.6 billion they had originally expected.

Lockup Lookout

Google's founders are cutting back on the shares they're selling, too, but not to such a great degree. Larry Page and Sergey Brin each now plan to sell roughly 480,000 shares in the company, or half the shares they had previously filed to sell. At the midpoint of the current expected price range, their sales should reap a little more than $43 million -- not a bad haul for a single day, but far from the $117 million or so they would have collected had they sold the number of shares they previously planned to sell at the midpoint of the prior price range.

Also selling half the shares they had expected are CEO Eric Schmidt and director K. Ram Shriram.

Other current Google investors haven't cut the number of shares they're selling.



, which recently settled a dispute with Google over the Yahoo!'s stake in its search engine rival, still plans to sell 1.6 million shares, or 20% of its holdings. Meanwhile

Time Warner's


America Online is still on track to sell 744,000 shares, or 10% of its stake.

Those shareholders who don't sell in the IPO will, of course, be able to sell their stock at a later date. As Google has already indicated, within three months lockups will expire on 43.7 million shares held by insiders. The company expects a total of 271 million shares outstanding after the offering.

The venture firms' decision not to sell in the IPO "is an overhang, or source of selling potential," says Harold Vogel of Vogel Capital Management. "Whenever they get a good run-up, I think the VCs will be itching to sell something," he says. Vogel isn't participating in the IPO, and says he expects to consider short-selling the stock at some point after it starts trading.

The news comes as the search-engine giant sharply scales back its IPO ambitions. The new parameters suggest Google is worth around $26 billion, not the $36 billion it was originally expected to command.

The development will bolster the case made by Google critics. They have questioned everything ranging from the company's now-discredited initial pricing range to its decision to run the IPO through an unusual Dutch auction arrangement. The 25% drop in the midpoint of the pricing range indicates that demand for the IPO is less than what the company expected, and that the unusual distribution system is complicating efforts to sell it.

The action also reflects the brutal market for technology stocks, particularly new ones. Since Google registered the offering with the SEC in late April, the

Nasdaq Composite

is down close to 10%, and a handful of IPOs have been delayed or withdrawn. Since the end of June, shares in Google's most direct rivals -- Yahoo!,


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-- have dropped between 15% and 30%.

On Wednesday, the big Net names reacted in mixed fashion to Google's latest IPO twist. Amazon rose nearly 2%, rising 71 cents to $38.94, while Yahoo! and eBay each dropped fractionally. In afternoon trading, Yahoo! was off 4 cents to $28.30 and eBay was down 6 cents to $79.51.

At the time of publication, Mannes had no positions in stocks mentioned, but he has placed a bid in the Google IPO for the purpose of reporting on the auction process.

has waived the provision of its Investment Policy with respect to Mannes' ownership of the stock solely for the purpose of writing stories on Google's IPO. If Mannes' bid is accepted, he has agreed to sell his shares as soon as possible following his brokerage firm's 30-day "no-flipping" window for initial public offerings. As the situation warrants, he will be reimbursed by

for any losses, or donate any gains to a charity to be named later.