Pinterest continuing the trend of teach companies IPOing with dual class share structures:
"Following this offering, we will have two classes of common stock: Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock will be identical, except with respect to voting, conversion and transfer rights. Each share of Class A common stock will be entitled to one vote. Each share of Class B common stock will be entitled to 20 votes and will be convertible at any time into one share of Class A common stock."
For tech companies, most people are investing in to founders - the company itself is just a medium. If I was an investor in tech company I would actually want dual class structure so its protected from short sighted bigger investors, likes of Icahn and hopefully pressure from Wall Street analysts to whatever extent possible. This puts some confidence in me as investor going for longer run.
The Indicator podcast from Planet Money covered this topic this morning. If I remember the conclusion correctly it was that these sorts of dual class stock deals were on the way out...except for tech firms.
The verdict on dual class shares is not as unfavourable as is frequently made out in the press as attested to by a recent study in the Harvard Law School Forum on Corporate Governance and Financial Regulation:
"The limited empirical evidence on the technology and emerging growth companies that are the target of these regulations is insufficient to support the adoption of new regulations, as the evidence that is available indicates that the most recent group of dual-class companies may have performed as well, if not better, than those with a single class of stock". [0].
Frankly, as a long term buy and hold investor, I actually prefer to invest in companies where the founders are solidly in control, assuming I believe in their abilities. It seems like it should free them from some of the pressure to optimize for the short term at the expense of long term success.
But if they aren't predicting profits any time soon you won't be getting dividends. And you'll only have weak voting rights with which to nudge corporate strategy.
Expected present value of future dividends of alternative entity expected to pay dividends and capital gains from said entity is less than expected future value of capital gains from a company that isn’t paying dividends, all adjusted for certain level of perceived risk of course.
The point of the structure is to maintain insider control, so when an insider want to sell some stock they do the conversation before selling to the public markets.
And it’s likely not optional. Any transfer of shares to someone who is not already a Class B holder will probably trigger a conversion. Iirc that’s how Facebook and Google’s shares are structured.
"Following this offering, we will have two classes of common stock: Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock will be identical, except with respect to voting, conversion and transfer rights. Each share of Class A common stock will be entitled to one vote. Each share of Class B common stock will be entitled to 20 votes and will be convertible at any time into one share of Class A common stock."