Snap, the parent company of message service Snapchat, asserts it is doing something unprecedented: conducting an IPO on a US stock exchange with entirely non-voting stock.
According to paperwork filed at the SEC, Snap has three classes of common stock: A, B, and C. Class A common stock shares – the only ones being sold in the IPO – don’t bestow any voting rights on their holders. Class B shares come with one vote per share, and Class C with 10 votes per share.
‘Although other US-based companies have publicly traded classes of non-voting stock, to our knowledge no other company has completed an initial public offering of non-voting stock on a US stock exchange,’ Snap’s IPO filing states.
In recent years, tech companies Facebook, Google and LinkedIn have popularized the ‘super-voting’ share as a way of focusing power among co-founders who may not own a majority of their company’s stock. These shares grant substantial voting rights to their holders – hence super-voting – in effect reducing the influence of ordinary shareholders. Mobile-gaming company Zynga infamously created a stock class so extreme for founder Mark Pincus – with 70 votes per share – that the Wall Street Journal dubbed them ‘extra-super-voting’.
Snap’s capital structure includes super-voting shares for co-founders Evan Spiegel and Robert Murphy, who will ‘have the ability to control the outcome of all matters submitted to our stockholders for approval,’ the IPO filing states. But it goes one step further by taking voting options off the table for public shareholders at the outset.
Snap’s IPO is being closely watched by the tech sector, which has amassed nearly 200 ‘unicorns’ – industry slang for a private company worth $1 bn or more. Of the top 20 venture-capital backed tech exits in 2016, all of which were worth $900 mn or more, only seven were IPOs, according to a recent report from venture capital research firm CB Insights.
For Snap, which says it aims to raise $3 bn in its offering, an important question raised by its filing is whether the company’s capital structure will scare off potential investors. In addition to having zero voting rights, holders of Snap’s Class A common stock will not be able to raise concerns at the company’s annual shareholders’ meeting, or nominate directors at those meetings, according to the IPO filing.
