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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 I

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.
    - bradleyjg 7y ago
      A company with 2000 shareholders and $10MM in assets it is forced to become a reporting company but it doesn’t have to go public.
    - mbell 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. This isn't entirely true. Once a company passes the shareholder limit they are required to publish public financials similar to what a publicly traded company must provide. However they are not required to sell their stock on the open market, it's just that it's such a small step at this point that most if not all do. Also - while this is often quoted as the reason for Facebook's IPO, it's worth noting that the investor limit was actually raised (from 500 to 2000) a couple months before Facebook's IPO. If it were really the main reason they could have easily held off on the IPO and carried on as a private company.
    - notyourday 7y ago
      It is a bit more complicated than that - FB investors used SPEs rather than held the shares directly. When the number of SPEs got too high those SPEs themselves reorganized moving the investors more levels down.
    - CPLX 7y ago
      That's not correct at all, there's no rule requiring companies to go public. And even if he didn't need cash, an IPO creates an incredible opportunity to use shares as a currency to fund high-dollar acquisitions, which he has most certainly taken advantage of.
- berberous 7y ago
  It's not preferred shares that are letting these founders retain control, it's having multiple classes of common stock where either the public investors get no votes for their shares, or the founders have 10+ for each of their shares, so that their vote always wins. This article gives a good overview of some of the changes that have occurred that have allowed this issue to proliferate (although the main issue seems to be a glut of capital and FOMO for these deals): https://corpgov.law.harvard.edu/2017/05/26/snap-and-the-rise-of-no-vote-common-shares/ https://corpgov.law.harvard.edu/2017/05/26/snap-and-the-rise...
ucha 7y ago
Google has 3 share classes as well and the founders control more than 50% of the voting power.
- daniel-cussen 7y ago
  Yes, but there's two of them.

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.
  - bradleyjg 7y ago
    A company with 2000 shareholders and $10MM in assets it is forced to become a reporting company but it doesn’t have to go public.
  - mbell 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. This isn't entirely true. Once a company passes the shareholder limit they are required to publish public financials similar to what a publicly traded company must provide. However they are not required to sell their stock on the open market, it's just that it's such a small step at this point that most if not all do. Also - while this is often quoted as the reason for Facebook's IPO, it's worth noting that the investor limit was actually raised (from 500 to 2000) a couple months before Facebook's IPO. If it were really the main reason they could have easily held off on the IPO and carried on as a private company.
  - notyourday 7y ago
    It is a bit more complicated than that - FB investors used SPEs rather than held the shares directly. When the number of SPEs got too high those SPEs themselves reorganized moving the investors more levels down.
  - CPLX 7y ago
    That's not correct at all, there's no rule requiring companies to go public. And even if he didn't need cash, an IPO creates an incredible opportunity to use shares as a currency to fund high-dollar acquisitions, which he has most certainly taken advantage of.
berberous 7y ago
It's not preferred shares that are letting these founders retain control, it's having multiple classes of common stock where either the public investors get no votes for their shares, or the founders have 10+ for each of their shares, so that their vote always wins. This article gives a good overview of some of the changes that have occurred that have allowed this issue to proliferate (although the main issue seems to be a glut of capital and FOMO for these deals): https://corpgov.law.harvard.edu/2017/05/26/snap-and-the-rise-of-no-vote-common-shares/ https://corpgov.law.harvard.edu/2017/05/26/snap-and-the-rise...

ucha 7y ago

Google has 3 share classes as well and the founders control more than 50% of the voting power.

daniel-cussen 7y ago
Yes, but there's two of them.