Venture Investors See Mixed Results from Dual Stock IPOs

Private company IPOs with multiple classes of stock are trendy and so far a mixed blessing for venture investors.

About as many of the venture-backed companies that have gone public in the past 18 months with two classes of stock have done well as done poorly.

At a quick glance, it is tempting to suspect the worse. Facebook, Zynga and Groupon all have two or three classes of stock and have seen share prices tumble since their IPOs. To what extent the performance can be tied to a dual-stock structure concentrating management control in the hands of a founder or small group of insiders is hard to gauge since each has significant business challenges.

But then it is equally dangerous to detach the two since management decisions were and are involved in both cases.

The Chinese social networking company Renren also employed two classes of stock and its shares have swooned from their issue price as well.

The interesting counterweight is a handful of venture-backed companies with two-stock structures that have had successful stock debuts. Included on the list are LinkedIn, Zillow, Yelp and Globus Medical. The average gain among these issues is 95%, comparing their IPO price with Monday’s close.

Workday will shortly begin trading with a dual-stock structure and it too could meet a warm reception.

Of course the source of the recent trend is Google, which has notched impressive gains of its own since its 2004 IPO.

Venture insiders say entrepreneurs are now more routinely considering dual-class stock structures, however only the hottest companies with the greatest concentration of ownership can insist on them. Facebook co-founder Mark Zuckerberg is the highest profile example, with 57.5% voting control of the company and 32.2% ownership of its vote-rich Class B shares, according to a May filing with the Securities and Exchange Commission.

Dual stock structures also are facing some new criticism. In August, with Facebook’s poor showing still in the news, the nation’s largest public pension fund, CalPERS, said it would consider avoiding IPOs that use them.

Please feel free to highlight other recent venture-backed dual-stock IPOs in the comments section below if I’ve forgotten to include them.

Photo courtesy of Shutterstock.

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