Yesterday, Lyft announced that its co-founders, John Zimmer and Logan Green, will step away from running the company but remain on the board. However, they must remain “service providers” in a separate regulatory filing to earn their equity reward agreements. (If Lyft is sold or they’re ousted from the board, these “time-based” vesting criteria will accelerate 100%.)
Their first awards were lavish, like many entrepreneurs who have utilized multi-class voting arrangements to gain control. For example, when Lyft went public in 2019, its dual-class share structure gave Green and Zimmer super-voting shares that gave them 20 votes per share for life and nine to 18 months after the last co-founder died, during which a trustee would hold control.
Even when IT companies adopted such agreements, it sounded excessive. However, Mr. IPO Jay Ritter, a University of Florida professor who tracks and analyzes IPOs, argues that Lyft’s trajectory may make stockholders even less cautious of dual-stock arrangements.
For one reason, founders lose influence when they sell their shares, which changes to a one-vote-per-share structure. Google’s founders, though, created a new share class in 2012 to retain authority. He told the WSJ yesterday that Zimmer holds 12% of Lyft’s shareholder voting rights and Green 20%.
Ritter adds that shareholders police tech businesses with dual-class shares. Similarly, look at Lyft, whose shares sold 86% below their IPO price earlier today, indicating investors have lost faith in the company.
Last night, Ritter explained why stakeholders are unlikely to fight super-voting shares, even if now is the moment. These are lightly edited excerpts from that chat.
TC: To seem founder-friendly, VCs and exchanges gave founders majority voting power during the previous decade. Your analysis shows that IT businesses going public with dual-class shares increased from 15% to 46% between 2012 and last year. As the market has narrowed and founders have less money, should this change?