I’m starting a company and I want you to invest. I will put up $100 of my money for $10 million of yours. I will own 100 shares of voting stock, and you will own 10 million shares of non-voting stock. My voting stock entitles me to make all the decisions.
You’ll pass on my offer? I thought so. But according to a recent WSJ article the kind of arrangement I have proposed is not unprecedented. It’s also, more or less, the deal that Snapchat offered through its IPO.* Other tech companies have recently done almost the same thing, or are making similar plans for when they go public.
Personally, I stay away from these sorts of investments. They offend me. But, I am certainly not writing this post to discuss their merits or the rationality of those who invest in them. I choose to write about the accounting issues only. [Read More...]