To stay in control after their startups IPO, founders are squirreling away superstock
Nearly public Pinterest and recently public Lyft are 2 very different companies with contrasting business strategies, growth plans, and profit margins.
But they share an interesting financial feature: superstock.
Superstock — a separate class of stock with the same value as normal stock on paper, but 20x as much voting power — is becoming a popular way for tech founders to retain a dictatorial degree of control over their companies when they go public.
Not all stock is created equal
In a traditional stock structure, one share equals one vote: So when investors buy more shares in a company, they also buy more input into its business decisions.
But not all corporations are that simple. Public companies can also issue different classesof stock, meaning that shares of equal financial value have unequal voting power.
At companies with multiple classes, high-class shareholders may have 20x as much voting power as normal shareholders, and low-class shareholders may not have any voting power at all — even though they’ve all invested the same amount in the company.
The new ari-stock-racy
So, what led to the rise of these anti-democratic stock structures?
Multi-class stock is the kind of thing that makes Travis Kalanick’s wallet stand at attention in his pocket: Split stocks allow founders to call a company’s shots even when they no longer control a majority of its shares.
Between 1980 and 2015, the percentage of tech companies to IPO with multi-class stock never exceeded 20%, but in the past 4 years that percentage has shot up to 50%.
Does the stock market have a class problem?
Multi-class fans argue that founders need consolidated power to prioritize long-term business success. But, a lot of times those decisions only benefit the top dogs.
Among the world’s biggest tech companies, there’s a split: Facebook, Google, and Snap all use multi-class structures — but Apple, Microsoft, and Amazon all made their fortunes with the one-stock-one-vote model.
Multi-class structures are possible because the biggest stock exchanges — the NYSE and the NASDAQ — allow them. But a number of investor groups have publicly called on exchanges to require equal voting rights.