Finance

Snap’s $3bn IPO will shut investors out

By Oliver Smith 3 February 2017
Summary

Just the latest example of a tech giant with disdain for meddling investors.

Snap, the parent company of ephemeral photo messaging app Snapchat, is kicking off one of the most highly anticipated tech public offerings in years.

With a valuation of between $20bn and $25bn Snap is looking to raise some $3bn from investors in return for shares in its hot business, which recently branched out to create its own Spectacles hardware.

Read more: Snapchat is about to hit the big time, here’s how millions of Millennials got it there

It’ll be the biggest US tech company to do so since Facebook in 2012.

But Snap’s initial public offering (IPO) comes with a catch.

The company won’t be giving away any voting power with the shares it sells, instead all the power to vote on crucial company decisions will be held by Snap’s founders and staff.

It’s just the latest example in a long line of tech companies unwilling to give outside backers influence in what happens in the business.

Without the power to vote, investors in Snap will be little more than ‘dumb’ money – entirely unable to influence what is going on and beholden to the decisions of co-founders Evan Spiegel and Robert Murphy.

Evan Spiegel will maintain a vast amount of control over Snap for the foreseeable future.

No votes for you

Traditionally owning a share in a business came with voting power which could be exercised on big decisions, like who would be on the board of directors or whether a company should accept a takeover bid.

But the founders of tech companies like Google, LinkedIn and Facebook have experimented with ways to maintain powerful grips on their company’s decision-making.

Mark Zuckerberg’s shares in Facebook, for instance, come with 10 votes per share, compared to the 1 vote that most of the publicly traded Facebook shares have.

Read more: Forget Facebook or Twitter, Snapchat won gold at the Olympics

Fighting for control

Snap’s decision not to give away any voting shares is the most extreme example of this practice, and Snap clearly recognises that in their letter to prospective investors:

“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.”

Snapchat also notes that concentrating so much control among the company’s co-founders Spiegel and Murphy could put off investors who are uncomfortable with not having a vote on matters.

“We cannot predict whether this structure and the concentrated control it affords Mr. Spiegel and Mr. Murphy will result in a lower trading price or greater fluctuations in the trading price of our [stock] as compared to the trading price if the [stock] had voting rights.”

Snap’s IPO will be the most high-profile tech float in years, and the business certainly has an exciting future.

But once that excitement fades, and investors find themselves riding the Snap rocketship, will they be happy with who’s driving?