Silicon Valley hubris seeks third-class vote-less stockholder.
Snap Inc., the parent company of SnapChat, filed for an IPO on Thursday. The filing revealed just how toxic this deal is going to be, not just from a financial point of view – a risk IPO investors are willing to take in order to grab the next Google or Facebook – but from a corporate governance and shareholder-rights point of view.
This has implications far beyond Snap: If Snap’s current owners can pull it off and get away with it, other companies will start doing the same thing, and it will forever change what it means to be a screwed stockholder.
Voting rights have already been diluted as our Silicon Valley heroes, such as Google and Facebook, have made a joke out of their common stockholders, but they still get to vote, even if in ludicrously diluted form.
But Snap will take it to the ultimate level: new shareholders will get no voting rights at all. Zilch. That’s a first in the history of US IPOs. These will be the three classes of Snap shares:
Owners of Class C common stock, which include co-founders Evan Spiegel and Robert Murphy, will get 10 votes per share.
Owners of Class B common stock, the existing investors, will get one vote per share.
Owners of Class A common stock will get no vote per share. None.
This vote-less Class A common stock is what is going to be sold to the public at the IPO. Shareholders will get little for their money – other than hope and hype and the financial toxicity of the deal that we can now see thanks to the filing.
Snap plans to extract $3 billion from the “public” by selling these new vote-less class A shares at the time of the offering in the near future, so initially to Wall Street firms at the IPO price before trading starts. These firms then sell their shares to the public when trading starts, hopefully at a higher price. If Snap can pull it off, it will be the largest “tech” IPO since Facebook.
The company currently has a “valuation” of $17.8 billion, established behind closed doors at its last round of funding. The hope is that the IPO price will value the company at $20 billion to $25 billion. That’s some serious moolah.
Now that we have its S-1 filing with the SEC, we can get a feel for the risks. Snap was founded in 2011. For years, it had no revenue model. In 2015, it started putting ads on its service and booked $58.7 million in advertising revenues, most of it in the second half. And it had a loss of $381.7 million. OK, it’s a startup. Fine.
In 2016, with its ad platform fully operational, revenues rose to $404.5 million, of which 98% was from advertising. And its net loss exploded to $514.6 million.
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http://wolfstreet.com/2017/02/03/snap-ipo-not-just-toxic-financial-results-third-class-non-voting-shares/
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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