Did you know that eventhough Snap co-founders, Even Spiegel and Bobby Murphy, only own 22% of the company, they hold 88% of the voting rights? Wait what?! How you ask? Well welcome to the Dual-Class Share Club.
What the heck are Dual-Class Shares you ask? Well simply put, dual class shares, are well, 2 classes of stock. One class for the… normal investors and one class of special stock, with more voting power, for “special investors”, normally the founders and top management.
Almost all new tech listings utilise this structure as it allows the founder(s) to maintain control without having to hold equity that would normally be needed to have that control, which allows them to raise more money to expand, without ceding control. Needless to say this is a very founder-friendly form of public listing.
Take Mark Zuckerberg (@Zuck) for example. He holds less than 1% of publicly traded stock but has 60% of its voting rights, which then explains his ability to make massive decisions, like buying WhatsApp for $22 billion, with little consultation with other stakeholders.
Once upon a time dual-class shares were used mostly by family-owned firms, like Ford and Warren Buffett’s Berkshire Hathaway, and media companies but starting with Google in 2004, this method of listing was then quickly adopted by a new age of tech companies.
So as more and more tech listing take place in ‘Founder Friendly’ environments, more and more stock exchanges are becoming ‘Founder Friendly’ in an attempt to lure over these large, or soon to be large, tech companies, from Alibaba to Facebook. Particularly Asian exchanges that have lost out to the west in recent times as Chinese tech firms, like Alibaba, opt to list in the U.S. instead of anywhere in Asia.
While this is definitely good for founders, what about companies or investors? Well we’ll discuss that the next time.