

In praise of dual-class stock structures for public companies - rms
http://blog.pmarca.com/2008/05/in-praise-of-du.html

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prakash
Bravo!! I absolutely agree with Marc, and kudos to the google guys, since they
had the foresight to do this.

I don't like the idea of public companies pandering to so called
_shareholders_. No one is putting a gun to anyone's head and asking them to
buy a public company stock.

Having a dual class structure will hopefully, help structure the right
incentives for people running public companies and will make sure they don't
do things just to boost stock prices or do things in the short term to make
their quarterly numbers.

~~~
muerdeme
_I don't like the idea of public companies pandering to so called
shareholders. No one is putting a gun to anyone's head and asking them to buy
a public company stock._

I understand your general sentiment, but this is silly. I don't know why you
call it pandering when they have a vested stake in a company's financial
future; the shareholders are owners, too.

 _Having a dual class structure will hopefully, help structure the right
incentives for people running public companies and will make sure they don't
do things just to boost stock prices or do things in the short term to make
their quarterly numbers._

This depends more on management compensation than stock structure. If the CEO
gets a huge bonus for the stock going up in the short term, he's more likely
to do shady things to boost the price.

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pchristensen
"If the market overall doesn't like the dual-stock structure, it can refuse to
provide capital to those companies, and instead provide that capital to
companies with shorter-term objectives and more outside shareholder control.
But I don't predict that will happen, and _I would be willing to bet my own
company on that_."

-First dibs on Ning IPO in a couple year!

~~~
wanorris
> First dibs on Ning IPO in a couple year!

How do they make enough revenue to justify their valuation? In the current
climate, you need a rock-solid revenue model to actually go public.

If Ning has that, I've managed to completely miss it.

~~~
pchristensen
Just a joke, poking fun at people overreacting to little statements from big
names.

But if you were going to bet on a tiny-revnue/big-eyeball startup, it would be
wise to bet on the one started by a guy with 2 multi-billion dollar exits :)

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mojuba
Can anyone explain please, how is the dual-class structure reflected on the
stock price? Class B should clearly be more expensive, even though not
necessarily 10 times.

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nostrademons
If it were public, yeah, but usually class B shares are not tradable. Their
whole purpose is to keep ownership in the founding family or founding
investors.

~~~
mojuba
Even though not publicly but still tradable, is this correct?

~~~
nostrademons
I think there may be some conditions for private sales of class B shares, like
if a member of the founding family wants out and sells their shares to current
management. Not being privy to any folks who have class B shares, I wouldn't
know. There's definitely not a liquid market like the public exchanges - it's
like selling stock in a private company.

Edit: just thought of a public company with both class A and B shares.
Berkshire Hathaway (Warren Buffett's company) has class B shares that each
have 1/30 the rights of class A shares, except that they have 1/200 the voting
rights. Right now, they're trading at almost exactly 1/30 the price of BRK-A,
so the market doesn't seem to give much weight to the reduced voting rights.
It's worth noting that BRK-B shares were created for a very different reason
than the article is about: some mutual fund manager was about to setup a
mutual fund that invested _only_ in Berkshire Hathaway but let you invest in
chunks of much less than the $100k share price of BRK-A, so Buffett figured
that if someone was going to arbitrage the share price, he might as well be
the one doing it instead of letting a money manager pocket the liquidity
premium.

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prakash
Do YC companies use dual-class structure? If not PG & Co, should make it the
norm and set the standard.

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ojbyrne
My immediate response is - is there an ulterior motive for this post?
Investors screwing around with Ning?

~~~
nostrademons
The post is about dual-class structures in _public_ markets and Ning is still
privately held, so I'd imagine not. VCs get preferred stock, which has _more_
rights than common, so I don't think he's aiming at Ning's VCs.

More likely, it was investors screwing around with Netscape in the months
leading up to the AOL buyout. Or possibly something with Loudcloud, though I
know nothing of the history there. I remember that Netscape had been severely
punished by the stock market starting in the beginning of 98, and if it hadn't
it probably could've gotten a much better deal than the $4.2B it ended up
with.

