5 ms·

In praise of dual-class stock structures for public companies

28 points by rms 19y ago

pchristensen 19y ago
"If the market overall doesn't like the dual-stock structure, it can refuse to provide capital to those companies, and instead provide that capital to companies with shorter-term objectives and more outside shareholder control. But I don't predict that will happen, and I would be willing to bet my own company on that." -First dibs on Ning IPO in a couple year!
- wanorris 19y ago
  > First dibs on Ning IPO in a couple year! How do they make enough revenue to justify their valuation? In the current climate, you need a rock-solid revenue model to actually go public. If Ning has that, I've managed to completely miss it.
  - pchristensen 19y ago
    Just a joke, poking fun at people overreacting to little statements from big names. But if you were going to bet on a tiny-revnue/big-eyeball startup, it would be wise to bet on the one started by a guy with 2 multi-billion dollar exits :)
ojbyrne 19y ago
My immediate response is - is there an ulterior motive for this post? Investors screwing around with Ning?
- pchristensen 19y ago
  Just writing about whatever makes pmarca happy - but that little line at the end did make me wonder about his intentions for when/if Ning goes public?
- nostrademons 19y ago
  The post is about dual-class structures in public markets and Ning is still privately held, so I'd imagine not. VCs get preferred stock, which has more rights than common, so I don't think he's aiming at Ning's VCs. More likely, it was investors screwing around with Netscape in the months leading up to the AOL buyout. Or possibly something with Loudcloud, though I know nothing of the history there. I remember that Netscape had been severely punished by the stock market starting in the beginning of 98, and if it hadn't it probably could've gotten a much better deal than the $4.2B it ended up with.
prakash 19y ago
Bravo!! I absolutely agree with Marc, and kudos to the google guys, since they had the foresight to do this. I don't like the idea of public companies pandering to so called shareholders. No one is putting a gun to anyone's head and asking them to buy a public company stock. Having a dual class structure will hopefully, help structure the right incentives for people running public companies and will make sure they don't do things just to boost stock prices or do things in the short term to make their quarterly numbers.
- muerdeme 19y ago
  I don't like the idea of public companies pandering to so called shareholders. No one is putting a gun to anyone's head and asking them to buy a public company stock. I understand your general sentiment, but this is silly. I don't know why you call it pandering when they have a vested stake in a company's financial future; the shareholders are owners, too. Having a dual class structure will hopefully, help structure the right incentives for people running public companies and will make sure they don't do things just to boost stock prices or do things in the short term to make their quarterly numbers. This depends more on management compensation than stock structure. If the CEO gets a huge bonus for the stock going up in the short term, he's more likely to do shady things to boost the price.
prakash 19y ago
Do YC companies use dual-class structure? If not PG & Co, should make it the norm and set the standard.
mojuba 19y ago
Can anyone explain please, how is the dual-class structure reflected on the stock price? Class B should clearly be more expensive, even though not necessarily 10 times.
- nostrademons 19y ago
  If it were public, yeah, but usually class B shares are not tradable. Their whole purpose is to keep ownership in the founding family or founding investors.
  - mojuba 19y ago
    Even though not publicly but still tradable, is this correct?
    - nostrademons 19y ago
      I think there may be some conditions for private sales of class B shares, like if a member of the founding family wants out and sells their shares to current management. Not being privy to any folks who have class B shares, I wouldn't know. There's definitely not a liquid market like the public exchanges - it's like selling stock in a private company. Edit: just thought of a public company with both class A and B shares. Berkshire Hathaway (Warren Buffett's company) has class B shares that each have 1/30 the rights of class A shares, except that they have 1/200 the voting rights. Right now, they're trading at almost exactly 1/30 the price of BRK-A, so the market doesn't seem to give much weight to the reduced voting rights. It's worth noting that BRK-B shares were created for a very different reason than the article is about: some mutual fund manager was about to setup a mutual fund that invested only in Berkshire Hathaway but let you invest in chunks of much less than the $100k share price of BRK-A, so Buffett figured that if someone was going to arbitrage the share price, he might as well be the one doing it instead of letting a money manager pocket the liquidity premium.
    - pchristensen 19y ago
      I thought I read in the Google Story (http://www.pchristensen.com/blog/articles/the-google-story-by-david-vise/ http://www.pchristensen.com/blog/articles/the-google-story-b...) that there was a provision that if any of the Class B shares were sold, they would convert on a 1:1 basis to Class A shares.

28 points by rms 19y ago

"If the market overall doesn't like the dual-stock structure, it can refuse to provide capital to those companies, and instead provide that capital to companies with shorter-term objectives and more outside shareholder control. But I don't predict that will happen, and I would be willing to bet my own company on that." -First dibs on Ning IPO in a couple year!

wanorris 19y ago
> First dibs on Ning IPO in a couple year! How do they make enough revenue to justify their valuation? In the current climate, you need a rock-solid revenue model to actually go public. If Ning has that, I've managed to completely miss it.
- pchristensen 19y ago
  Just a joke, poking fun at people overreacting to little statements from big names. But if you were going to bet on a tiny-revnue/big-eyeball startup, it would be wise to bet on the one started by a guy with 2 multi-billion dollar exits :)

ojbyrne 19y ago

My immediate response is - is there an ulterior motive for this post? Investors screwing around with Ning?

pchristensen 19y ago
Just writing about whatever makes pmarca happy - but that little line at the end did make me wonder about his intentions for when/if Ning goes public?
nostrademons 19y ago
The post is about dual-class structures in public markets and Ning is still privately held, so I'd imagine not. VCs get preferred stock, which has more rights than common, so I don't think he's aiming at Ning's VCs. More likely, it was investors screwing around with Netscape in the months leading up to the AOL buyout. Or possibly something with Loudcloud, though I know nothing of the history there. I remember that Netscape had been severely punished by the stock market starting in the beginning of 98, and if it hadn't it probably could've gotten a much better deal than the $4.2B it ended up with.

prakash 19y ago

Bravo!! I absolutely agree with Marc, and kudos to the google guys, since they had the foresight to do this. I don't like the idea of public companies pandering to so called shareholders. No one is putting a gun to anyone's head and asking them to buy a public company stock. Having a dual class structure will hopefully, help structure the right incentives for people running public companies and will make sure they don't do things just to boost stock prices or do things in the short term to make their quarterly numbers.

muerdeme 19y ago
I don't like the idea of public companies pandering to so called shareholders. No one is putting a gun to anyone's head and asking them to buy a public company stock. I understand your general sentiment, but this is silly. I don't know why you call it pandering when they have a vested stake in a company's financial future; the shareholders are owners, too. Having a dual class structure will hopefully, help structure the right incentives for people running public companies and will make sure they don't do things just to boost stock prices or do things in the short term to make their quarterly numbers. This depends more on management compensation than stock structure. If the CEO gets a huge bonus for the stock going up in the short term, he's more likely to do shady things to boost the price.

prakash 19y ago

Do YC companies use dual-class structure? If not PG & Co, should make it the norm and set the standard.

mojuba 19y ago

Can anyone explain please, how is the dual-class structure reflected on the stock price? Class B should clearly be more expensive, even though not necessarily 10 times.

nostrademons 19y ago
If it were public, yeah, but usually class B shares are not tradable. Their whole purpose is to keep ownership in the founding family or founding investors.
- mojuba 19y ago
  Even though not publicly but still tradable, is this correct?
  - nostrademons 19y ago
    I think there may be some conditions for private sales of class B shares, like if a member of the founding family wants out and sells their shares to current management. Not being privy to any folks who have class B shares, I wouldn't know. There's definitely not a liquid market like the public exchanges - it's like selling stock in a private company. Edit: just thought of a public company with both class A and B shares. Berkshire Hathaway (Warren Buffett's company) has class B shares that each have 1/30 the rights of class A shares, except that they have 1/200 the voting rights. Right now, they're trading at almost exactly 1/30 the price of BRK-A, so the market doesn't seem to give much weight to the reduced voting rights. It's worth noting that BRK-B shares were created for a very different reason than the article is about: some mutual fund manager was about to setup a mutual fund that invested only in Berkshire Hathaway but let you invest in chunks of much less than the $100k share price of BRK-A, so Buffett figured that if someone was going to arbitrage the share price, he might as well be the one doing it instead of letting a money manager pocket the liquidity premium.
  - pchristensen 19y ago
    I thought I read in the Google Story (http://www.pchristensen.com/blog/articles/the-google-story-by-david-vise/ http://www.pchristensen.com/blog/articles/the-google-story-b...) that there was a provision that if any of the Class B shares were sold, they would convert on a 1:1 basis to Class A shares.