Jan 16, 2017

Snap's IPO investors will get no say

Snapchat's parent company is taking "founder control" to another level as it inches toward an IPO later this quarter. The company is planning to issue non-voting stock to investors in its IPO, as it did in its previous private funding round, according to the Wall Street Journal. In November, The Information spotted the move in a newly filed document in Delaware.

What this means: Evan Spiegel and Bobby Murphy will have more than 70% of the voting power and 45% of the stock.

In context: While a bit more extreme than past cases, dual-stock structures aimed at leaving founders in control are not unseen, especially in Silicon Valley. Facebook and Google are two well-known examples. The rationale is usually that the founders want to keep taking big bets or having flexibility without a board telling them what to do (too much).

The fine print: Snap's setup also includes some protections for public investors, according to the WSJ's sources. If the founders' stock falls below 30%, all shares will convert to common stock. And if either founder dies, his shares can't be transferred—a clear signal that Snap believes the founders have a unique vision for the company that can't be imitated.

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