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(This message was added in version 6.7.0.) in /home4/scienrds/scienceandnerds/wp-includes/functions.php on line 6114Source:https:\/\/techcrunch.com\/2023\/03\/28\/the-market-has-changed-but-super-voting-shares-are-here-to-stay-says-mr-ipo\/<\/a><\/br> Yesterday, the ride-sharing company Lyft said its two co-founders, John Zimmer and Logan Green, are stepping down<\/a> from managing the company\u2019s day-to-day operations, though they are retaining their board seats. According to a related\u00a0regulatory filing<\/a>, they actually need to hang around as \u201cservice providers\u201d to receive their original equity award agreements. (If Lyft is sold or they\u2019re fired from the board, they\u2019ll see \u201c100% acceleration\u201d of these \u201ctime-based\u201d vesting conditions.)<\/p>\n As with so many founders who\u2019ve used multi-class voting structures in recent years to cement their control, their original awards were fairly generous<\/a>. When Lyft went public in 2019, its dual-class share structure provided Green and Zimmer with super-voting shares that entitled them to 20 votes per share in perpetuity, meaning not just for life but also for a period of nine to 18 months after the passing of the last living co-founder, during which time a trustee would retain control.<\/p>\n It all seemed a little extreme<\/em>, even as such arrangements became more common in tech. Now, Jay Ritter, the University of Florida professor whose work tracking and analyzing IPOs has earned him the moniker Mr. IPO, suggests that if anything, Lyft\u2019s trajectory might make shareholders even less nervous about dual-stock structures.<\/p>\n For one thing, with the possible exception of Google\u2019s founders \u2014 who came up with an entirely new share class<\/a> in 2012 to preserve their power \u2014 founders lose their stranglehold on power as they sell their shares, which then convert to a one-vote-per-one-share structure. Green, for example, still controls 20% of the shareholder voting rights at Lyft, while Zimmer now controls 12% of the company\u2019s voting rights, he told the WSJ yesterday.<\/p>\n Further, says Ritter, even tech companies with dual-class shares are policed by shareholders who make it clear what they will or will not tolerate. Again, just look at Lyft, whose shares were trading at 86% below their offering price earlier today in a clear sign that investors have \u2014 at least for now \u2014 lost confidence in the outfit.<\/p>\n We talked with Ritter last night about why stakeholders aren\u2019t likely to push too hard against super-voting shares, despite that now would seem the time to do it. Excerpts from that conversation, below, have been lightly edited for length and clarity.<\/p>\n TC: Majority voting power for founders became widespread over the last dozen years or so, as VCs and even exchanges<\/a> did what they could to appear founder-friendly. According to your own research, between 2012 and last year, the percentage of tech companies going public with dual-class shares shot from 15% to 46%. Should we expect this to reverse course now that the market has tightened and money isn\u2019t flowing so freely to founders?<\/strong><\/p>\n JR: The bargaining power of founders versus VCs has changed in the last year, that\u2019s true, and public market investors have never been enthusiastic about founders having super voting stock. But as long as things go well, there isn\u2019t pressure on managers to give up super voting stock. One reason U.S. investors haven\u2019t been overly concerned about dual-class structures is that, on average, companies with dual-class structures have delivered for shareholders. It\u2019s only when stock prices decline that people start questioning: Should we have this?<\/p>\n Isn\u2019t that what we are seeing currently?<\/strong><\/p>\n With a general downturn, even if a company is executing according to plan, shares have fallen in many cases.<\/p>\n So you expect that investors and public shareholders will remain complacent about this issue despite the market.<\/strong><\/p>\n In recent years, there haven\u2019t been a lot of examples where entrenched management is doing things wrong. There have been cases where an activist hedge fund is saying, \u201cWe don\u2019t think you\u2019re pursuing the right strategy.\u201d But one of the reasons for complacency is that there are checks and balances. It\u2019s not the case where, as in Russia, a manager can loot the company and public shareholders can\u2019t do anything about it. They can vote with their feet. There are also shareholder lawsuits. These can be abused, but the threat of them [keeps companies in check]. What\u2019s also true, especially of tech companies where employees have so much equity-based compensation, is that CEOs are going to be happier when their stock goes up in price but they also know their employees will be happier when the stock is doing well.<\/p>\n Before WeWork\u2019s original IPO plans famously imploded in the fall of 2019, Adam Neumann expected to have so much voting control over the company that he could pass it along to future generations<\/a> of Neumanns. <\/strong><\/p>\n But when the attempt to go public backfired \u2014 [with the market saying] just because SoftBank thinks it\u2019s worth $47 billion doesn\u2019t mean we think it\u2019s worth that much \u2014\u00a0 he faced a trade-off. It was, \u201cI can keep control or take a bunch of money and walk away\u201d and \u201cWould I rather be poorer and in control or richer and move on?\u201d and he decided, \u201cI\u2019ll take the money.\u201d<\/p>\n I think Lyft\u2019s founders have the same trade-off.<\/p>\n Meta is perhaps a better example of a company whose CEO\u2019s super-voting power has worried many, most recently as the company has leaned into the metaverse<\/a>.<\/strong><\/p>\n A number of years ago, when Facebook was still Facebook, Mark Zuckerberg proposed doing what Larry Page and Sergey Brin had done at Google but he got a lot of pushback and backed down <\/a>instead of pushing it through. Now if he wants to sell off stock to diversify his portfolio, he gives up some votes. The way most of these companies with super voting stock are structured is that if they sell it, it automatically converts into one-share-one-stock sales, so someone who buys it doesn\u2019t get extra votes.<\/p>\n A story in Bloomberg earlier today asked why there are so many family dynasties in media \u2014 the Murdochs, the Sulzbergers \u2014 but not in tech<\/a>. What do you think?<\/strong><\/p>\n The media industry is different from the tech industry. Forty years ago, there was analysis of dual-class companies and, at the time, a lot of the dual-class companies were media: the [Bancroft family, which previously owned the Wall Street Journal], the Sulzbergers with the New York Times. There were also a lot of dual-class structures associated with gambling and alcohol companies before tech firms began [taking companies public with this structure in place]. But family firms are nonexistent in tech because the motivations are different; dual-class structures are [solely] meant to keep founders in control. Also, tech companies come and go pretty rapidly. With tech, you can be successful for years and then a new competitor comes along and suddenly . . .<\/p>\n
\nThe market has changed, but super-voting shares are here to stay, says Mr. IPO<\/br>
\n2023-03-29 22:31:56<\/br><\/p>\n