The market has changed, but super-voting shares are here to stay, Mr IPO said.


Yesterday, ride-sharing company Lyft said its two co-founders, John Zimmer and Logan Green, are stepping down from running the company’s day-to-day operations, although they will retain their board seats. According to a related regulatory filing, they must remain “service providers” in order to receive their original equity award agreement. (If an elevator is sold or kicked off the board, you will see a 100% acceleration of these “time-based” landing conditions.)

As with many founders who have taken control in recent years using multi-class voting structures, their initial rewards were quite generous. Lyft When it was announced in 2019, the two-tier share structure gave Green and Zimmer super-voting shares that would give them 20 votes per share in perpetuity, meaning not only for life but also for nine to 18 months. Passing the last co-founder, during this period the trustee takes control.

Everything seems small ExtremistAlthough such arrangements are very common in technology. Now, Jay Ritter, a University of Florida professor whose work tracking and analyzing IPOs has earned him the moniker Mr. IPO, suggests that if anything, Lyft’s approach may make shareholders more wary of dual-stock structures.

For one thing, with the exception of Google’s founders — who in 2012 came up with an entirely new class of shares to protect their power — founders lose their vested interest in power when they sell their shares, and then become one-vote. – One-share structure. Green, for example, still controls about 20% of the shareholder votes in Lyft, while Zimmer now controls 12% of the company’s voting rights, he told the WSJ yesterday.

Plus, Ritter says, even tech companies with dual-tier stocks are protected by shareholders who make it clear what they will and won’t tolerate. Again, just look at Lyft, whose shares were trading 86% below their value earlier today, and it’s clear that investors — at least for now — have lost faith in the outfit.

We talked to Ritter last night about why stakeholders shouldn’t be pushing hard on super-voting shares, even though now seems like the time to do so. An excerpt of that conversation, below, has been slightly edited for length and clarity.

TC: Even VCs and exchanges have gone out of their way to appear founder-friendly, so over the last dozen or so years they’ve started giving more votes to founders. According to your own research, between 2012 and last year, the percentage of tech companies with dual-class stocks going public rose from 15 percent to 46 percent. Should we expect this trend to change now that the market is stronger and money is flowing freely to founders?

JR: The bargaining power of founders and VCs has changed in the past year, it’s true, and public market investors have never been more excited about founders having super voting stock. But as long as things are going well, there is no pressure on managers to give up high voting stock. One reason American investors are not overly concerned about two-tier structures is that, on average, companies with two-tier structures offer more to shareholders. It’s only when stock prices go down that people start asking: Should we own this?

Aren’t we seeing it now?

In general decline, even if a company performs according to the plan, shares have fallen in many cases.

Therefore, investors and public shareholders are expected to remain indifferent to this issue despite the market.

There have not been many examples of entrenched management getting things wrong in recent years. There were instances when an activist hedge fund said, “We don’t think you’re following the right strategy.” But one reason for complacency is that there are checks and balances. It is not a situation like in Russia where a manager can rob the company and the public shareholders can do nothing. They can vote with their feet. There are also shareholder lawsuits. These can be abused, but their risk [keeps companies in check]. What’s also true, especially at tech companies whose employees have equity-based compensation, is that CEOs are happier when their stock goes up in value, but their employees are happier when the stock does well.

Before WeWork’s original IPO plans became public in late 2019, Adam Neumann expected to have more vocal control over the company and pass it on to future generations of Neumanns.

But when the attempt to go public failed – [with the market saying] Just because SoftBank thinks it’s worth $47 billion doesn’t mean we think it’s worth that much — it’s got a trade-off. “Can I take control or take more money and walk away” and “Would it be better to stay poorer and stay in control or stay rich?” It was. And he decided, “I’ll take the money.”

I think the founders of Lyft have a similar trade-off.

Meta is perhaps the best example of a company where the CEO’s high voting power has worried many, as the company has been leaning towards the opposite of Meta lately.

Several years ago, when Facebook was still Facebook, Mark Zuckerberg proposed to do what Larry Page and Sergey Brin did at Google, but he got a lot of pressure and backed off. Now he has left some votes if he wants to sell stocks to extend his portfolio. The way most companies with super-voting stock are structured, if you sell it, it’s immediately converted to a one-share-one-stock sale, so the person who buys it doesn’t get any extra votes.

A story on Bloomberg earlier today asked why there are so many family dynasties in media — the Murdochs, the Sulzbergers — but not in tech. what do you think?

The media industry is different from the technology sector. Forty years ago, an analysis of two-tier companies was conducted, and at the time, there were many two-tier companies in the media: [Bancroft family, which previously owned the Wall Street Journal], Sulzburgers with The New York Times. Before tech companies started, there were many two-tier structures associated with gambling and alcohol companies. [taking companies public with this structure in place]. But family firms do not exist in technology because the motivations are different; They are two-level structures [solely] To keep founders in control. Also, technology companies come and go quickly. You can be successful with a technology for years and then a new competitor comes along and suddenly . . .

So the bottom line is that even if shareholders don’t like it from your point of view, dual-tier stocks aren’t going away. They don’t like to do anything about them. is that right

If there were concerns about an entrenched administration following years of foolish policies, investors would want big concessions. That might be on Adam Neumann; His oversight was nothing to get investors excited about the company. But for most tech companies — I’m not counting WeWork — because you have employees with equity-linked compensation, not just a founder, there’s a lot of pressure, if not obvious, to maximize shareholder value. Founder’s desire. I wonder if they disappear.



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