Control – SNAP, an exemplar in control,BigRedCar
August 5th 2018
Big Red Car here filled to overflowing with a good church sermon. I will have to digest it a bit.
So, one of the things the Big Red Car preaches to his CEO coaching clients is, “Retain control of your company at all costs. When you lose control, the probability of your being replaced goes up astronomically.”
This is what the Big Red Car says when a venture capitalist wants to make an investment resulting in an “after money” equity ownership of 20%, but wants two seats on a five-man Board of Directors.
“Uhhh, CEO, if the VC owns 20% then he gets 20% of the board seats. That’s one, not two!”
Interestingly enough, CEOs seem to always win this argument. This is a matter of control.
SNAP took this idea to a higher level when it went public. The IPO created three categories of common stock.
Class A – the stock sold to the public through the IPO – NO VOTING RIGHTS.
Class B – the stock owned by critical employees and some early investors – ONE VOTE PER SHARE.
Class C – the stock owned by the founders (Bobby Murphy CTO, Evan Spiegel CEO) – TEN VOTES PER SHARE.
In this manner, the co-founders control 88.5% of the votes, meaning they have total, absolute control of the makeup of the Board of Directors. Bobby and Evan control SNAP like a rented mule. If you have control of the Board, they cannot fire you.
So, Big Red Car, is this a good thing? Yes, it is if you are Bobby or Evan.
Control, a new idea, Big Red Car?
Well, actually, dear reader, it is not.
1. Mark Zuckerburg controls 60% of all the votes at Facebook.
2. Rupert Murcoch controls 40% of the votes at 21st Century Fox and News Corp.
3. Google is controlled by Sergey and Larry — haha, like we’re close friends – OK, that’s Sergey Brin and Larry Paige who control 52% of voting shares.
Bottom line it, Big Red Car
OK, here it is, y’all. When you buy non-voting stock or minority control stock in a public company you are betting on the controlling person. This means if you own SNAP you are betting on Bobby Murphy and Evan Spiegel. Jockey, horse, course, y’all.
It also means you may get a stock performance like this:
SNAP IPO price $17.00
SNAP first bounce price $24.48 (44% pop)
SNAP current price $12.73/share
Here is what happened to SNAP since the IPO:
The other thing of some note is that the “Evan & Bobby show” conducted a three minute Annual Meeting on Thursday last, taking no questions. They did file a perfectly journeyman-like Form 10K with the US SEC as required by law, but they did not have much of an Annual Meeting.
OK, so when you bought that SNAP Class A, you knew you weren’t getting any votes, you knew Bobby & Evan controlled everything, but did you know you wouldn’t have a “real” Annual Meeting?
So, high marks to the founders of SNAP (Bobby & Evan) for maintaining control of their company, but the Big Red Car is unimpressed by the company stock performance and the arrogant Annual Meeting.