Snap, the parent company of popular disappearing-messages service Snapchat, claims to be doing something unprecedented in its IPO: conducting an initial public offering on a US stock exchange with entirely non-voting stock.
According to paperwork filed today, Snap has three classes of common stock: A, B, and C. Class A common stock shares—the only ones being sold in its IPO—don’t confer any voting rights on their holders. Class B comes with one vote per share, and Class C with 10 votes per share.
“Although other US-based companies have publicly traded classes of non-voting stock, to our knowledge, no other company has completed an initial public offering of non-voting stock on a U.S. stock exchange,” Snap’s IPO filing states.
In recent years, tech companies from Facebook to Google to LinkedIn have popularized the “super-voting” share as a way of concentrating power among co-founders who may not own a majority of their stock. Such shares grant substantial voting rights to their holders—hence the name, super-voting—effectively diluting the clout of ordinary shareholders. Mobile-gaming company Zynga notoriously created a stock class so extreme for founder Mark Pincus—with 70 votes per share—that the Wall Street Journal dubbed them extra-super-voting.
Snap’s capital structure includes super-voting shares for co-founders Evan Spiegel and Robert Murphy, who will ”have the ability to control the outcome of all matters submitted to our stockholders for approval,” the IPO filing warns. But it goes one step further by taking voting options off the table for public shareholders at the outset.
“This is not so much about capital structure as it is about control,” Aswath Damodaran, a professor and valuation expert at New York University, told Quartz. ”I don’t like it, as an investor, but my guess is that the investors who like Snap will let it go by, just as they have for Google and Facebook.”
Snap’s IPO is being closely watched by the tech sector, which has amassed nearly 200 “unicorns”—industry slang for a private company worth $1 billion or more—but graduated barely any of them into the public markets. Of the top 20 venture-capital backed tech exits in 2016, all of which were worth $900 million or more, only seven were IPOs, according to a recent report from VC research firm CB Insights.
For Snap, which said it aims to raise $3 billion in its offering, a key question raised by its filing is whether the company’s aggressive capital structure will scare off potential investors. In addition to having zero voting rights, holders of Snap’s Class A common stock will not be able to raise concerns at the company’s annual shareholders’ meeting, or nominate directors at those meetings, according to the IPO filing.
Even with those caveats, Christopher Austin, a partner at Orrick, Herrington & Sutcliffe with expertise in tech IPOs, said most investors probably won’t mind. “Investors have gotten used to the idea of nonvoting shares, if there’s a founder who appears able to execute and with a fairly unique asset,” Austin said. “From the perspective of the individual stockholder, I don’t think there’s much between having a single vote and having no vote at all.”