Business Development · Entrepreneurship

How did Snapchat cofounders manage to own each 44.3% of voting stock pre-IPO?

Luigi Guarnieri Sales Support Cash&Carry presso Esprinet Italia

February 7th, 2017

I keep reading on the news several pieces covering the IPO of Snapchat. What really surprised me the most was the amount of stock that its cofounders, Evan Spiegel and Bobby Murphy, were able to own before the IPO. To review the breakdown feel free to read Snapchat's S-1 filing.

The amount of stock that is important here is not the total equity ownership in the business, but the Class C stock. To provide some background on this front, Snap Inc. (parent of Snapchat) has three classes of shares within its stock structure: non-voting Class A shares, Class B shares entitled to one vote, and Class C shares which are entitled to 10 votes. Spiegel and Murphy own 100% of Class C shares.

With the above in mind, my question is how is this possible? What lessons can other entrepreneurs learn from this scenario in terms of control? Especially taking into consideration that Snap Inc. has raised, according to Crunchbase, over $2.63 billion which includes more than 24 sophisticated institutional investors.

Look forward to a healthy discussion :)

Dane Madsen Organizational and Operational Strategy Consultant

February 7th, 2017

This is similar to Google and Facebook, both on ownership pre IPO and votes. If you have a company with a product people cannot live without, you get to define this. However, there has to be a long term relationship and real revenues and sustainable earnings. If you obsess over control, there is a hidden agenda that you think you may have some rocky road ahead of you, and the Board and shareholder may be interested in firing you. So you reserve the votes for yourself instead. Before you confuse hype with reality, think about Twitter and Groupon, both market darlings that are clearly dogs. Here is a comparison of SNAP to Twitter is you have an interest.

Ken Anderson Director, Entrepreneurial and Small Business Development, Delaware Economic Development Office

February 7th, 2017

One of the very basic practices that is so easy to suggest here, but ultra difficult to execute, is for Founders to wait as long as possible to grow the business, use revenues and profits to operate the business early, validate the business model, before giving up equity for arguably small doses of external capital. Giving up equity too soon, marginalizes Founder's ownership interest and their resulting equity position, when they need equity to bargain for VC type funding to scale.

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June 8th, 2021

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