Lyft & # 39; s IPO submission: How founders create their supremacy in Silicon Valley


You would not know that there is a growing public impact on the strength of Silicon Valley's founders at companies like Facebook when you look at the latest public company: Lyft.

Lyft's 250-page IPO application to the SEC on Friday, March 1, unveiled a company that went to great lengths to empower its founders and protect them from outside control of investors, setting up of a share structure that ensures that they – like Mark Zuckerberg – will have almost complete control over the future of the company.

Lyft's two co-founders, Logan Green and John Zimmer, own about 7 percent of the company's stock, a meager amount that talks about how much money they have raised from outside investors during the company's ten-year cash burn. But they keep close to majority control of the company thanks to a dual-class share structure that gives them 20 votes for every vote held by other investors. Typically, dual-class voting structures have a 10-1 ratio, according to Amy Borrus, deputy director of the Council of Institutional Investors. "It's pretty uncomfortable from the perspective of a public shareholder," Borrus said Recode.

So just like Evan Spiegel on Snap or Larry Page at Alphabet can not be started if something goes wrong, good luck trying to change Lyft without the co-founders say.

That is normal in the world of startups – after all, the founders have built the damn thing – but some corporate governance critics look laconically at a public company that behaves like a private company. Yet this has become the new standard in Silicon Valley.

Lyft is the latest in a series of technical companies that opt ​​for dual-class voting structures. Nearly 50 percent of recent technical listings have dual-class status, according to a December report in the Harvard Business Review.

The reasons for the increase in share prices in multiple classes are clear to companies.

"Our summary is that their growing popularity is due to the growing importance of intangible investments, the rise of activist investors and the decline of other protection mechanisms available to existing management such as staggered signs and poison pills," wrote the HBR authors. "A dual-class structure, which offers immunity against proxy competitions initiated by short-term investors, could be optimal if foundation managers can ignore the pressure of capital markets and avoid short-sighted actions such as reducing research and development and postponing corporate restructuring."

The company itself determines the share structure, so there is nothing that prevents Lyft from sharing majority votes. The choice can be more difficult for investors in the public market. Those who judge whether they purchase Lyft shares may be discouraged due to their inability to influence the direction of the company.

Lyft recognizes so much.

"The dual-class structure of our ordinary shares has the effect of concentrating the voting power with our co-founders, which will limit your ability to influence the outcome of important transactions, including a change in control," Lyft & # 39; s filing told potential investors. "Our co-founders, individually or together, may have interests that differ from yours and may vote in a way that you disagree and may be detrimental to your interests."

That is a long way to say: you are with Logan Green and John Zimmer, or you deal with it.

Now there are many good arguments for companies led by founders, even if they end up in public markets. However unstable Elon Musk may be, only he – as a person with the budding idea – can change the public discourse about driving our cars. Amazon may be the most ruthless competitor in today's business world, but would the company be so driven if it were not formed by the Jeff Bezos values ​​every day? Bezos does not have super-large majority shares but does have too much influence on the company.

Founders understand the company they have built, say proponents and can think in the long term, unlike investors who are growing me-at the moment. It is unclear how dual-class structures affect a company's performance: Studies have shown both positive and negative results.

Either way, Lyft has a difficult journey ahead – one that needs more than just the fervor of the founders.

Lyft's turnover grew by more than 100 percent in 2018, compared with a year earlier. That grows faster than its losses, which at that time grew by 32 percent. Yet almost a billion dollars in net loss is a huge amount, and the journey to profit is unclear. In its initial public bid requests, the company warned: "We have a history of losses and we expect significant increases in our costs and expenses to lead to sustained losses for the near future."

It must also worry about the elephant in the room: Uber.

Lyft is the first company in the US to go to the stock market. The company raced to become public for its main competitor, Uber, and revealed the filing of its IPO just a few weeks before the arrival of Uber is expected to take place.

But while the two companies have been in a public relations and price war for over a decade, Lyft's call to investors is seen as a sheer bet on the American rendezvous industry. Uber, valued at about five times the price on the private markets, is a much more diverse global company – with significant interests in rendezvous rivals in Asia and Europe, along with a flourishing delivery service in Uber Eats that Lyft is lacking.

And Uber, once led by a founder of Mercury, also offers something different in the era after Travis Kalanick: no more shares with two classes.