While many people may think that the inauguration of Donald Trump was the end of America as we know it, the reality is there is a much more under-the-radar yet tangible change that spells doom for most Americans: the IPO of Snapchat, or Snap Inc. as it is now called.

Critics of the company’s decision to solely issue nonvoting stock are completely missing the most significant ramifications of doing so, instead focusing on how the company will be managed and guided.  What they are missing is that for all intents and purposes, the economic value of owning a share of stock – which entitles them to a specified portion of any eventual proceeds, will be tremendously exaggerated at best, or a complete mirage at worst.  This is because of the compensation enriching schemes by management which minority nonvoting shareholders will be unable to alter.  In the long run, which seems to be the ruse under which the founders and underwriters are claiming the need for nonvoting stock, a small group of employees at the very top1 will eventually recapture all the supposed value they are selling to shareholders, through The Skim and the Partial Ponzi.  It will happen very slowly, through financial conjuring so prevalent in the corporate suites and boardrooms today that I believe is rooted in incorrectly and under-priced option incentives.  Then, through the power of compounding, the transfer of value will be sucked out of ordinary shareholders.  Furthermore, given the fact that profitability is way out in the future, there is a very good chance that you are effectively buying shares in nothing.

While the reactionary backlash for coming up with an idea such as nonvoting stock, would point fingers at the founders and the Wall Street bank(er)s underwriting the deal, the real blame lies with the massive institutions and fund managers who put up no resistance and passively buy this stuff for our savings accounts and pension funds.  Blackrock, Vanguard, are you really rock-steady and  …vanguards?  Oh, and don’t ever think for a moment that dual-class shares is a suitable compromise.  It’s our money the owners are cashing out on.

So forget about Trump, if ever there were an event that seeded a revolution, the IPO of Snapchat is it.  Snap – there goes the nation.

  1. Oh, and another interesting tidbit and aside from the S-1: the comp of the two Snapchat founders (and a few other top execs). They are already making seven figures annually in cash.  All this talk about the new trend of delaying IPO’s and keeping companies private I believe is largely predicated on the fact that there’s considerably less risk, or no risk actually, to founders becoming millionaires.  Oh sure, I know what the west coast is thinking ‘There’s no cachet in being a millionaire, billionaire is where it’s at – haven’t you seen the show?  Yet I highly doubt this trend would have evolved were the founders at risk of losing it all w/o the ability to sell stock in an IPO []


Leave a Reply