TheCorporateCounsel.net

Many institutional investors have incessantly whined about vociferously objected to dual-class capital structures, which could be eliminated pretty quickly if they simply refused to invest in IPOs by companies that adopted them. Apparently, that’s not a viable alternative because of “FOMO” or something, but this excerpt from a recent Fenwick memo indicates that institutional investors’ “buy first, whine later” strategy doesn’t seem to be working very well, at least in Silicon Valley:

Adoption of dual-class voting stock structures has continued its more than decade long upward trend among Silicon Valley technology companies, reaching 29.3% of companies in the SV 150 in the 2023 proxy season. Historically, dual-class voting stock structures were significantly more common among S&P 100 companies than among the technology and life sciences companies in the SV 150, though the frequency in the SV 150 has surpassed that in the S&P 100 since 2015.

Other than the recent overall trend in the SV 150, the variation in the percentage of each group over time is primarily a function of changes in the constituents of each group. Within the SV 150, our data suggests that since 2018 there has been a steady increase in dual-class voting structures. That has been a function of companies such as Alphabet (Google), Meta (Facebook), Block (formerly Square), Airbnb, DoorDash, Lyft, Twilio, Zoom Video Communications, and Coinbase joining the SV 150 with dual-class structures.

The memo points out that from 2018 through 2022, 42% of tech companies that went public had a dual- class voting stock structure in place, and that investors expect the trend of companies going public with dual-class structures is likely to continue. That means the percentage of SV 150 companies with dual- class structures is likely to grow as well.

– John Jenkins