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> Mr. Neumann still has allies among the directors and the ability to fire the entire board thanks to shares he controls that carry extra votes. It defies imag

> Mr. Neumann still has allies among the directors and the ability to fire the entire board thanks to shares he controls that carry extra votes. It defies imagination that a fund would put 10B into a company whose CEO is accountable to no one. I think we may also see new leadership in SoftBank, or at least their next fund.

ink_13 7y ago
This is true of many large companies today, though. Facebook comes to mind.
- tyri_kai_psomi 7y ago
  What I don't understand is what is so mind boggling to GP? This is the norm for the vast majority of private companies.
  - kevinmchugh 7y ago
    That vast majority never goes public or gets close to doing so, right? Those companies aren't worth a billion or more
  - willwagner 7y ago
    I think if you are including coffee shops, dry cleaners, and the rest of small businesses that are self-funded, I agree. If you look at VC backed high tech startups, I don't think that is the norm: https://www.capshare.com/blog/4-key-insights-from-5000-cap-tables/ https://www.capshare.com/blog/4-key-insights-from-5000-cap-t...
    - throwawayjava 7y ago
      > high tech WeWork?
      - wongarsu 7y ago
        WeWork presents itself as tech startup and is often presented that way. They are really more a real estate business, but in this context their self perception is the only relevant view
    - tyri_kai_psomi 7y ago
      What about non-vc backed high tech startups, which are the by far the majority of tech jobs? (my company, fwiw) We have investors sure, but the two founders retain the control. All of the companies we have acquired were in similar situations. In fact it is precisely not until you get to VC-backed startups where this becomes surprising, such as in the GP comment I was referring to. If you actually make money, have positive cash flow, and have a sustainable business model, you don't have to give up control. The investors will come to you -- foreign concept to the SV-SF "high tech" bubble, I know.
      - goatinaboat 7y ago
        non-vc backed high tech startups, which are the by far the majority of tech jobs? Citation very much needed. The majority of tech jobs are not at startups of either kind.
        tyri_kai_psomi 7y ago
        Startups is such a loosely qualified term these days that it practically means any business that has "recently started", so no you don't need a citation because the word in of itself is subjective.
  - kelnos 7y ago
    Assuming you mean just tech companies, yes, this is now the norm. But I suspect it's mainly due to backlash over the previous period, where many ignorant investors would oust founders and replace them with "professional managers" who would then either run the company into the ground, or sell it for scraps. So I completely understand why founders, now given the opportunity, would write these sorts of share class structures into their business. It's definitely gone too far, though. But that's usually what happens.
  - chrisseaton 7y ago
    > This is the norm for the vast majority of private companies. But they're trying to become a public company - that's the point.
  - wpietri 7y ago
    That's not the case. For private companies where the founder has the majority share, sure. But what's unusual with WeWork is how the founder has control despite not having a majority share. As others mention, there are historical reasons why WeWork got this. But things like WeWork and Uber are going to be the new historical reasons why founders don't get that as much.
- the_watcher 7y ago
  It's true of some large companies, yes. But it's still extraordinarily uncommon overall. Zuck's Facebook arrangement was essentially unique at the time of the IPO, and Facebook's success led to more founders on unicorn trajectory demanding and receiving similar terms, but it's still far from the norm.
  - fragmede 7y ago
    Preferred shares existed before Facebook, and it may not the be norm, but there's a reason we no longer see the hostile takeovers from the 80's.
    - notyourday 7y ago
      > Preferred shares existed before Facebook, and it may not the be norm, but there's a reason we no longer see the hostile takeovers from the 80's. That has nothing to do with preferred shares. Most of public companies adopted poison pills aka shareholder right protection plans which work along the lines of this: 1. If someone acquires a certain percentage of company shares without board of directors agreeing to it, then the company automatically issues a very large number (2x to 3x) of shares and allows shareholders of record of a certain past date before the hostile party launched the acquisition to obtain newly issued shares at a discount. 2. Board members have staggered terms so the acquiring party cannot replace more than a small percentage of board members thereby preventing the one's ability to flood the board one's supporters It used to be that preferred shares were a special class of equity that paid higher dividends. The funny part is that tech companies tend not to pay any dividends what so ever and now with the special classes of shares that have nearly no voting rights ( compared to the 'preferred shares' that are controlled by the insiders ) the same companies make a virtual mockery out of the concept of a "public company". Facebook is not a public company in any sense other than the name -- it is Mark's personal piggybank that he shares with a few insiders with the crums off the table being given to the people whom he used to call "stupid".
      - rossdavidh 7y ago
        While there are issues with Zuckerberg, I think it bears noting that the FB IPO wasn't done because he needed the money, but rather because they were forced too by law because too many people had ownership. So, he didn't give great terms in the IPO because he didn't really need any cash; FB was already cashflow-positive. This is a marked contrast to WeWork.
- jeremyjh 7y ago
  No one put anything close to 10B into Facebook. Their largest single investor was Goldman Sachs at 450MM, after there was already a lot of other money in. Their total funding was 2.3B before IPO.
rolltiide 7y ago
This is awesome, it might force the private sector to regulate governance structures more strictly. The exchanges and indexes already do this, but haven't gotten around to cultish companies that consider themselves tech. The exchanges and indexes say things like “minimum X% of float needs to be in the market”, so you dont have 1% of the company trading with the CEO now being a billionaire on paper from 99% of shares. Ive seen Chinese exchange allows for shenanigans like that, for example, while US ones dont. They could easily dictate share class structures, ultimate beneficial ownership rules, and more. This would force VCs and PE to require changes no matter how much FOMO they have.
paggle 7y ago
The last 10 years have been investors competing over startups, so this is what you get.
Donald 7y ago
You can thank loose monetary policy that has created an unbalance between capital seeking returns and the number of investment opportunities. Executives have leveraged this into abusive multi-class share structures that sacrifice shareholder's ability to reign in company behavior. The result is a few tech executives wielding unaccountable authority over incredibly powerful economic resources.
- nalfien 7y ago
  "Abusive"? That's a bit over the top. No one is forcing these people to put money into these companies if they dont like the terms.
  - grandridge 7y ago
    If they actually had to earn the money they'd treat it different. Free money just enables stupid shit like this at all our expenses. The comment you responded to is on point
  - asdkhadsj 7y ago
    I mean, it sounds like it is abusive, but it's an abusive relationship investors sought out. At this point it's akin to someone who seeks out abusive partners due to mental health issues. It doesn't make the partners any less abusive, but lets not kid ourselves and think the seeker is a healthy individual. Their greed is killing them.
    - ehsankia 7y ago
      I think the reality of the situation is that some of these investors actually like the "visionary leader who full control and isn't dragged down by investors" model.
      - pgwhalen 7y ago
        Yeah I don’t understand why people in this thread aren’t entertaining that possibility. It objectively worked for Facebook, at least in terms of financial return.
selimthegrim 7y ago
Reposting because FT had it up: https://www.twitter.com/nickatfp/status/1171613239580516352 https://www.twitter.com/nickatfp/status/1171613239580516352
- selimthegrim 7y ago
  https://twitter.com/NickatFP/status/1173819520584208384 https://twitter.com/NickatFP/status/1173819520584208384

ink_13 7y ago

This is true of many large companies today, though. Facebook comes to mind.

tyri_kai_psomi 7y ago
What I don't understand is what is so mind boggling to GP? This is the norm for the vast majority of private companies.
- kevinmchugh 7y ago
  That vast majority never goes public or gets close to doing so, right? Those companies aren't worth a billion or more
- willwagner 7y ago
  I think if you are including coffee shops, dry cleaners, and the rest of small businesses that are self-funded, I agree. If you look at VC backed high tech startups, I don't think that is the norm: https://www.capshare.com/blog/4-key-insights-from-5000-cap-tables/ https://www.capshare.com/blog/4-key-insights-from-5000-cap-t...
  - throwawayjava 7y ago
    > high tech WeWork?
    - wongarsu 7y ago
      WeWork presents itself as tech startup and is often presented that way. They are really more a real estate business, but in this context their self perception is the only relevant view
  - tyri_kai_psomi 7y ago
    What about non-vc backed high tech startups, which are the by far the majority of tech jobs? (my company, fwiw) We have investors sure, but the two founders retain the control. All of the companies we have acquired were in similar situations. In fact it is precisely not until you get to VC-backed startups where this becomes surprising, such as in the GP comment I was referring to. If you actually make money, have positive cash flow, and have a sustainable business model, you don't have to give up control. The investors will come to you -- foreign concept to the SV-SF "high tech" bubble, I know.
    - goatinaboat 7y ago
      non-vc backed high tech startups, which are the by far the majority of tech jobs? Citation very much needed. The majority of tech jobs are not at startups of either kind.
      - tyri_kai_psomi 7y ago
        Startups is such a loosely qualified term these days that it practically means any business that has "recently started", so no you don't need a citation because the word in of itself is subjective.
- kelnos 7y ago
  Assuming you mean just tech companies, yes, this is now the norm. But I suspect it's mainly due to backlash over the previous period, where many ignorant investors would oust founders and replace them with "professional managers" who would then either run the company into the ground, or sell it for scraps. So I completely understand why founders, now given the opportunity, would write these sorts of share class structures into their business. It's definitely gone too far, though. But that's usually what happens.
- chrisseaton 7y ago
  > This is the norm for the vast majority of private companies. But they're trying to become a public company - that's the point.
- wpietri 7y ago
  That's not the case. For private companies where the founder has the majority share, sure. But what's unusual with WeWork is how the founder has control despite not having a majority share. As others mention, there are historical reasons why WeWork got this. But things like WeWork and Uber are going to be the new historical reasons why founders don't get that as much.
the_watcher 7y ago
It's true of some large companies, yes. But it's still extraordinarily uncommon overall. Zuck's Facebook arrangement was essentially unique at the time of the IPO, and Facebook's success led to more founders on unicorn trajectory demanding and receiving similar terms, but it's still far from the norm.
- fragmede 7y ago
  Preferred shares existed before Facebook, and it may not the be norm, but there's a reason we no longer see the hostile takeovers from the 80's.
  - notyourday 7y ago
    > Preferred shares existed before Facebook, and it may not the be norm, but there's a reason we no longer see the hostile takeovers from the 80's. That has nothing to do with preferred shares. Most of public companies adopted poison pills aka shareholder right protection plans which work along the lines of this: 1. If someone acquires a certain percentage of company shares without board of directors agreeing to it, then the company automatically issues a very large number (2x to 3x) of shares and allows shareholders of record of a certain past date before the hostile party launched the acquisition to obtain newly issued shares at a discount. 2. Board members have staggered terms so the acquiring party cannot replace more than a small percentage of board members thereby preventing the one's ability to flood the board one's supporters It used to be that preferred shares were a special class of equity that paid higher dividends. The funny part is that tech companies tend not to pay any dividends what so ever and now with the special classes of shares that have nearly no voting rights ( compared to the 'preferred shares' that are controlled by the insiders ) the same companies make a virtual mockery out of the concept of a "public company". Facebook is not a public company in any sense other than the name -- it is Mark's personal piggybank that he shares with a few insiders with the crums off the table being given to the people whom he used to call "stupid".
    - rossdavidh 7y ago
      While there are issues with Zuckerberg, I think it bears noting that the FB IPO wasn't done because he needed the money, but rather because they were forced too by law because too many people had ownership. So, he didn't give great terms in the IPO because he didn't really need any cash; FB was already cashflow-positive. This is a marked contrast to WeWork.
jeremyjh 7y ago
No one put anything close to 10B into Facebook. Their largest single investor was Goldman Sachs at 450MM, after there was already a lot of other money in. Their total funding was 2.3B before IPO.

rolltiide 7y ago

This is awesome, it might force the private sector to regulate governance structures more strictly. The exchanges and indexes already do this, but haven't gotten around to cultish companies that consider themselves tech. The exchanges and indexes say things like “minimum X% of float needs to be in the market”, so you dont have 1% of the company trading with the CEO now being a billionaire on paper from 99% of shares. Ive seen Chinese exchange allows for shenanigans like that, for example, while US ones dont. They could easily dictate share class structures, ultimate beneficial ownership rules, and more. This would force VCs and PE to require changes no matter how much FOMO they have.

paggle 7y ago

The last 10 years have been investors competing over startups, so this is what you get.

Donald 7y ago

You can thank loose monetary policy that has created an unbalance between capital seeking returns and the number of investment opportunities. Executives have leveraged this into abusive multi-class share structures that sacrifice shareholder's ability to reign in company behavior. The result is a few tech executives wielding unaccountable authority over incredibly powerful economic resources.

nalfien 7y ago
"Abusive"? That's a bit over the top. No one is forcing these people to put money into these companies if they dont like the terms.
- grandridge 7y ago
  If they actually had to earn the money they'd treat it different. Free money just enables stupid shit like this at all our expenses. The comment you responded to is on point
- asdkhadsj 7y ago
  I mean, it sounds like it is abusive, but it's an abusive relationship investors sought out. At this point it's akin to someone who seeks out abusive partners due to mental health issues. It doesn't make the partners any less abusive, but lets not kid ourselves and think the seeker is a healthy individual. Their greed is killing them.
  - ehsankia 7y ago
    I think the reality of the situation is that some of these investors actually like the "visionary leader who full control and isn't dragged down by investors" model.
    - pgwhalen 7y ago
      Yeah I don’t understand why people in this thread aren’t entertaining that possibility. It objectively worked for Facebook, at least in terms of financial return.

selimthegrim 7y ago

Reposting because FT had it up: https://www.twitter.com/nickatfp/status/1171613239580516352 https://www.twitter.com/nickatfp/status/1171613239580516352

selimthegrim 7y ago
https://twitter.com/NickatFP/status/1173819520584208384 https://twitter.com/NickatFP/status/1173819520584208384