As part of the papers filed for its IPO yesterday, Snpachat’s parent company Snap revealed the ownership and power structure that the company will use moving forwards. Snap CEO Evan Spiegel and CTO Robert Murphy will have the majority of the company’s voting shares, while regular investors will have no voting rights at all.
The move is described as “highly unusual,” which it is for a regular company. But for a Silicon Valley behemoth run by evangelical founders who want to change the world, it’s becoming increasingly common.
In the IPO filing, Snap lays out how its stock is divided:
We have three classes of common stock: Class A common stock, Class B common stock, and Class C common stock. The rights of the holders of Class A common stock, Class B common stock, and Class C common stock are identical, except with respect to voting, conversion, and transfer rights. Class A common stock is non-voting. Anyone purchasing Class A common stock in this offering will therefore not be entitled to any votes. Each share of Class B common stock is entitled to one vote and is convertible into one share of Class A common stock. Each share of Class C common stock is entitled to ten votes and is convertible into one share of Class B common stock.
Spiegel and Murphy hold the entirety of the Class C stock, which means that the two of them hold a majority of the votes. As the documents go on to explain, that gives them total power over a company — even if they were to not own a majority of the company’s value:
Mr. Spiegel and Mr. Murphy, and potentially either one of them alone, have the ability to control the outcome of all matters submitted to our stockholders for approval, including the election, removal, and replacement of directors and any merger, consolidation, or sale of all or substantially all of our assets. If Mr. Spiegel’s or Mr. Murphy’s employment with us is terminated, they will continue to have the ability to exercise the same significant voting power and potentially control the outcome of all matters submitted to our stockholders for approval.
The divide of voting and non-voting stock in this way goes against the ages-old understanding that the people who own a company call the shots. But it’s not unprecedented in Silicon Valley, where founders view raising capital and selling shares as a necessary evil, only required to get the money to disrupt the entire world.
Google made the trick popular, but Mark Zuckerberg took the move to heart when he issued Class C stock for himself last year. Proponents argue that it insulates founders against share dilution; others say it creates a “leader-for-life” situation that could come back to bite investors down the line.
Either way, it’s getting more popular. Zuckerberg and Google might have invented the trick, but Snap is the first company that’s trying an initial public offering of non-voting stock. Provided that the IPO goes well and the non-voting stock doesn’t scare off investors, expect more founders for life to come.