The Wilson Sonsini report reviews IPO filing, pricing, and value statistics for 123 initial public offerings completed by U.S.-based technology and life sciences companies between January 1 and June 30, 2021. In addition, the report addresses governance provisions, ownership & structure, and defensive measures. There are all sorts of interesting tidbits in here, including this excerpt on dual class capital structures:
Of the 123 companies considered, 36 companies (29.3%) had multiple classes of common stock. Of those 36 companies, 29 were technology companies and seven were life sciences companies. Thirty-two of the 36 companies implemented dual-class common stock. Four companies implemented multi-class common stock, all of which were technology companies. None of the life sciences companies implemented multi-class common stock.
Typically, when a company has multiple classes of stock, one class has more voting power while the other class has limited or no voting rights. Dual- or multi-class stock is often implemented to give existing stockholders—including founders or other executives—more control. However, multiple classes can be implemented for other reasons, including company structuring and regulatory compliance reasons.
Many companies that implement a dual- or multi-class structure with high-vote shares include a sunset provision in the charter where the high-vote shares fall away upon the occurrence of one or more specified conditions, such as the date on which all high-vote shares represent less than a certain percentage of all shares outstanding, after a specified time period, or upon the occurrence of a specific event, such as the death of a founder. Of the 36 companies that had multiple classes of common stock, 28 companies (77.8%) had a sunset provision.
The report also briefly discusses the prevalence and terms of early lock-up releases, concurrent private placements, indications of interest, direct listings, and directed share programs.
– John Jenkins