Equity transcribed: Silicon Valley’s founder fetish infantilizes public companies

Welcome back to this week’s transcribed edition of Equity.

This was a big week of news that the Equity duo had to cover. Kate was at the Code Conference, Fortnite maker, Epic Games bought Houseparty, and a bit more on the Bird-Scoot deal.

Then came talk of the CrowdStrike IPO, which gave way to a heated discussion about dual-class shares.

Alex Wilhelm: I think it’s honest. I think giving the public one vote per share, and giving yourself 10 so you retain greater than 50% of voting is a sop. I think it’s ridiculous. Just fly under your own flag. If you don’t want to share any control, then don’t. If you want to have a company with a functional governance, that adheres to historical norms for how this stuff works, then have votes. This 10 versus 1 thing is a fracking farce, because I can’t swear on this show, so you can fill that in yourself. If you want to look at a historical example of a company that didn’t have this setup, it was Amazon, which historically thinks far ahead, and has done fantastically well. It’s public company growing from a, I believe, under nine-figure revenue. The idea you can’t do it is trash. The idea that it always works is wrong. To me, it’s dishonest. If you’re going to sell shares, go public, and float, share the voting power with your shareholders. Don’t treat them like children, and you like a god. You’re not.

Kate Clark: Alex is getting really worked up, but I totally agree with you. That’s why I want to-

Wilhelm: I’m not worked up, I’m angry.

Clark: That’s why I wanted to talk about it though, because I think it’s important. I think what you just said is a perfect summary of why it’s messed up. The only thing I think that will really change this, is to see whether these dual-class stocks, versus single-class stocks, perform differently on the market. As far as I know, they’re not, which means that people don’t care. Or, people don’t know, I don’t know. If a company isn’t going to lose any money doing it … If they’re not going to have any consequences whatsoever, they’re not going to be up against any negative feedback from shareholders, then of course, they’re going to keep doing it. Like I said, it’s not really talked about very much.

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Kate Clark: Hello and welcome back to Equity. I am TechCrunch’s Kate Clark, and this is the podcast where we talk about venture capital. I am here this week with my cohost Alex Wilhelm, the editor in chief of Crunchbase News. Alex, how’s it going?

Wilhelm: I’m very good. It’s good to be back in the new TC studio. Our producer’s beard is looking quite fit and honestly, it’s been a lovely week in San Francisco, so hard to complain.

Clark: And you are getting ready for a little vacation.

Wilhelm: Yes, I will not be on the next two weeks of Equity, which is, I think, the longest break I’ve had since the show began. I think. I’m going off to get hitched, so I’m going to depart from the internets. I’m even going to try to delete Twitter from my phone.

Clark: You are not.

Wilhelm: I’ve promised my therapist, so that’s basically a contract. So I’m going to try to be offline, like actually offline.

Clark: Good for you.

Wilhelm: Thank you.

Clark: I’ll believe it when I see it.

Wilhelm: True facts.

Clark: I’m sad we’re not going to have you for two weeks. I’m also really excited for you because getting married is awesome and congratulations.

Wilhelm: Well, no, don’t jinx it, nine days, et cetera, et cetera. But you just got back from apparently the Southwest. You were down in Arizona, I think. What was going on down there?

Clark: Yeah. I went to a conference in Scottsdale, Arizona, which is not somewhere I’ve ever been before, but also never for a conference. It was definitely an interesting choice. It was where they hosted Recode’s Code Conference, which is an annual very exclusive conference that I learned, it doesn’t necessarily have a theme other than tech, I guess, intersection of tech, politics, media, things like that. So it’s very general. It brings together all the thought leaders, some of the biggest names in tech, some of the biggest names in politics, media …

Wilhelm: And this was the all-things-digital conference going back in time … Was it Kara Swisher was part of that, and that was at the Times or the Journal, and then it was spun out under Recode, and then they took it over, and now it’s still going on in that forum.

Clark: Exactly, so it’s been going on a long time. This was my first year going and I talked to a bunch of people there who’ve been going for years, and they all had really great things to say about it. I think because Recode does a really good job of keeping the conference really efficient, they only really bring together people who have important things to say about the state of technology today. But I also heard this was disappointing in terms of the lineup and I … it was a great line up. It had the CEO of YouTube-

Wilhelm: Susan Wojcicki.

Clark: Right. It had the CEO of Medium, it had Stacey Abrams-

Wilhelm: Stacey Abrams from the Georgian political scene.

Clark: Yeah, exactly. But last year they had Dara from Uber, they had Brian Chesky of Airbnb, and had Evan Spiegel of Snap. So I think people were-

Wilhelm: I’ll take Stacey Abrams over those three.

Clark: Well, yes, certainly. I think perhaps last year generated a little more headlines than this year.

Wilhelm: Oh, you mean from just a sheer newsworthiness perspective.

Clark: Yeah, so the main news that came out of it was there was a great panel between the YouTube CEO and Peter Kafka of Recode in which he kind of nailed her for all the controversy over hate speech and content moderation, and she seemed shockingly unprepared to answer any questions to the point that I think everyone in the audience was just like, “How could a CEO not have responses prepared for these questions which she should have absolutely been expecting?” It was really interesting to see.

Wilhelm: Points to her not being media trained to the point of having nothing to say at all, but I think also having some sort of idea of how to respond to the obviously impending questions is good. This came up a little bit on This Week in Tech, the other tech show this weekend that I was on, and we tried to parse the difference between platforms and publishers. If you have a community guidelines, if you don’t enforce it, where does that puts you? YouTube has really put itself in a place of essentially nowhere to win. I’m just very glad I’m not in charge of that company.

Clark: Yes, I completely agree. I would never want the responsibility of making decisions like that. But he asked her something at the end of the interview like, “Have you thought about the possibility of separating from Google? Like will YouTube spin out from Google?”

Wilhelm: And she said?

Clark: She was very flustered and she said, “I haven’t really thought about that. I’ve had a really busy week.” Something along those lines.

Wilhelm: Which is at once a bad response and a partial response.

Clark: It’s a pretty bizarre response. Everyone was like, “How, what?” And I wrote down here on our script to … there were a lot of really interesting key themes, and namely separating big tech, so separating Google from YouTube, separating Facebook from Instagram, things like that. The other representatives like Adam Mosseri, head of Instagram, he was prepared with a much more seemingly authentic response. Something along the lines of, “It would make my job way easier if we separated, but we shouldn’t because that would be dumb,” and kind of outlining why it would actually be worse for their businesses, at least in his biased opinion.

Wilhelm: I’m not surprised that the Facebook war machine of its PR department prepped Mosseri well, but I’m shocked that Google’s own didn’t prep Wojcicki. These companies tend to have very well-oiled, well-heeled and well-financed divisions that help you prep for things like this. This is why CEOs don’t usually say things that are eye-catching if they don’t mean to, because they’re prepared.

Clark: Yeah. I think my key takeaway from this conference was just, this started as something that was very much promoting, and the innovation going on in technology, and I think today it’s just highlighting the failures of technology and bringing more attention to the techlash, the concept, the backlash against Silicon Valley. Just interesting to see that play out across … it’s now headlines all the time, but also these conferences have a completely different feeling than they probably did. I don’t know, I wasn’t covering tech a decade ago, but I imagine it was a lot different.

Wilhelm: So on that point, Martin Bryant, formerly of The Next Web, my old publication that he used to write for, wrote a piece, gosh, two months ago, and he says, “I miss the days when we were really excited about tech,” because if you go back to the early days of South By Southwest, when tech was still kind of coming up, there was, “Who’s gonna be the big breakout app of South By?” And people were looking for the next thing. They were excited about it. It was a moment in which the upstart was the cool thing. Now incumbency, and the power, and the wealth that come with that have been celebrated for so long, now we’re seeing the response to that. The techlash, it’s not pretty, it’s not going to stop soon. But it is, you’re correct, I think, a sea change.

Clark: Right, and it goes back to the conversation we had two weeks ago about the way the tech press covers tech. I think you made a great point back in that episode. We are perhaps often negative in our coverage, but perhaps we should be a lot more negative in our coverage, and negative’s not necessarily the right word, but just critiquing when critiquing is appropriate. I don’t want to go down this rabbit hole, but yeah, the times have changed and we’re not looking at technology with rose-colored glasses the way we once were.

Wilhelm: I think now we understand when these platforms get to the size they are and responsibilities change, it’s no longer the plucky Harvard dropout. It’s Mark Zuckerberg and his iron grip on a multibillion-dollar empire.

Clark: Let’s transition into the news of the week.

Wilhelm: Yes.

Clark: This week was crazy for M&A activity as, I think, has been the last month. There was that multimillion-dollar deal of Looker.

Wilhelm: $2.6 billion.

Clark: And then there’s been smaller deals going on just right and left. There were two this week. The first we’re going to talk about is the Fortnite … well, the Epic Games acquisition of Houseparty.

Wilhelm: Yes. I am in charge of this one because I have played Fortnite I think about three times.

Clark: I played once.

Wilhelm: Oh, you did play once?

Clark: Yeah.

Wilhelm: All right, good. Chris? No, the producer hasn’t played it. So it’s an average of 2.5 games apiece, give or take, not an impressive team. Okay. Epic Games owns Fortnite. Epic Games also, if I recall correctly, has a PC store in which they sell games, a bit similar to Steam, and those questions about platform lock-in. And so there’s a big kind of battle going on in gaming, making this a very interesting space, not just because of Fortnite as a cultural phenom. Now, Epic Games has bought a thing called Houseparty, which is a, I’m going to throw some words together, teen-focused group video chatting application.

Clark: Have you used it?

Wilhelm: I’m not a teen, so no.

Clark: I’ve never used it either, but I know people that have used it that are not teens.

Wilhelm: Oh, maybe I’m undershooting the age a bit.

Clark: I think it’s more maybe a millennial and Gen Z app.

Wilhelm: Okay, fair enough. It looks really cool. I was researching before the show. It actually looks great. If I had three other friends to call, I would actually use it, but I only have two. But the whole point here is what people don’t get about Fortnite often is that it is building a social fabric that isn’t just about a game. People, especially younger gamers, use Fortnite as a social place to hang out. It’s where they go to chit-chat. Yes, some gaming will happen in the conversation, but akin to a poker game if you’re not playing too seriously, it’s a way to get together and talk.

Houseparty, with its focus on group communication, a younger-ish demographic, fits well into that, but it is a bit of a right turn in a product sense, making this deal quite interesting. Now, I don’t think it was the world’s largest deal. I don’t think it was huge. Houseparty had raised just over $70 million in its life as a private company, which is a lot but also not SoftBank money, so that’s the scale.

Clark: Yeah. Apparently they had 35 million users, but they’ve actually not had really much user growth in the last couple of years. Digiday was reporting that the acquisition actually came at kind of a troublesome time for Houseparty. I hadn’t heard a ton about it in the last couple of years, so that makes sense to me. But as you just explained, given the social nature of both companies, it does seem like a good match. Though I will be curious to see just exactly how Epic rolls in Houseparty, whether it integrates the tool or what. I think for now, want to continue operating just as it has been.

Wilhelm: Yeah. To me, there’s two things that stick out about this deal. One, that Epic Games is buying this other company, which must have cost at least some money, and two, that we’re seeing gaming companies try to build a vertical stack. I think this is now going to be like a platform games and a way to communicate both probably during and after games. Fortnite also has an in-game chat functionality with voice, but I think most people use Discord, which is another very popular platform in gaming.

Wilhelm: It goes to show the second point, how gaming is far from now a cottage industry that is secluded on its own. That’s been true for some time, but I think this goes to show exactly how true it is. I think it’s still easy for people to dismiss gaming and gamers as a youthful kind of waste of time, but I think that underestimates the cultural power there. This is a good part kind of pointing in that direction.

Clark: Yeah, and just a reminder, Epic Games raised $1.25 billion. What was that, like eight months ago, maybe? I think end of 2018.

Wilhelm: So much money.

Clark: Right, so I think they had plenty of money, making an acquisition, investing that money somewhere is not a bad call.

Wilhelm: No, especially if you get to bring in several dozen million people to your world. You can then promote your games to them, et cetera, et cetera, et cetera, so it makes a lot of sense. It’s cool, not going to stop playing Apex Legends, but Fortnite, there you go. It’s a whole thing. Cool.

Now we can confirm something that we talked about last week and also point out that we were only partially right about something else inside the deal. Bird has bought Scoot.

Clark: Bird has confirmed they are acquiring Scoot. They will not say how much they’re paying for Scoot, which is not surprising. But the Wall Street Journal reported, and I was able to confirm with some sources, that they are paying less than $25 million.

Wilhelm: Less than $25 million?

Clark: Yes, sub-$25 million. So that’s bad for Scoot and its investors. That’s good for Bird because that’s a very cheap acquisition. The reason that that’s bad for Scoot is that they’d raised somewhere around $40 million and they had been valued at $71 million with their last round, which they hadn’t raised for several years. So based on my reporting, and existing reports, and also just conjecture, they were having a really hard time raising capital because they’re a small company. They don’t have a ton of scooters. They can’t compete with Bird or Lime unless they were to raise several hundred million dollars. And there’s already these two key dominant players here in the US, several others abroad. There was just no reality in which Scoot was going to emerge as able to compete with those. So they were not in a good spot. They were in a really tough spot, and selling to Bird was the best outcome that they could have had.

Wilhelm: Yeah, they’re going to essentially convert Scoot shares into Bird shares, probably as a payout, I presume, and mostly stock deals. It’s into Bird shares. Probably as a player, I presume, a mostly stock deal. I don’t know that. But it’s a guess and they’re going to make a wager on one of the two biggest players in America.

And I don’t really have an opinion on Bird versus Lyme, but one of them is going to do better than the other, so take a bet. If you know it’s not going to be you, at least throw your lot in a place where it might win.

Clark: Right. Bird’s investors certainly think it’s going to triple in value in the next couple of years. We’ll see. I also don’t have an opinion branding-wise. I feel a slight favor toward Lime, but I don’t really know.

Wilhelm: Sure. Sure. Well, Lime just changed its CEO out, if I recall correctly.

Clark: It did. Yeah, a couple, maybe a month ago.

Wilhelm: About a month ago.

Clark: But they switched to another co-founder, so that’s not-

Wilhelm: The world’s biggest deal?

Clark: Yeah, yeah.

Wilhelm: Often the startups, people will swap out founders when one wants to either do something else or gets out scaled by the business.

Clark: Exactly.

Wilhelm: It’s not a sin. Some people are better at early stage versus late.

Clark: Precisely what happened in that case. The other founder had a lot of more experience kind of at the growth stage. I think he had worked at Tencent for awhile.

Wilhelm: Yes.

Clark: So they were, “Let’s, maybe time to swap.”

Wilhelm: Yeah. And not a bad sign by itself. A couple of the other things, it can be a sign of negative problems for a company.

Clark: Right. I think in this case they were just making a smart move.

Clark: But what were you saying earlier about us getting something wrong? What did we get wrong about Bird?

Wilhelm: Oh, we were joking or riffing that it was probably them in an attempt to buy access to the SF market. When, in reality, the way this works out with the city, if I recall properly, they cannot rebrand all the Scoot scooters as Bird here instantly, which was my guess of why they were doing this.

Wilhelm: Instead they can operate Scoot scooters in San Francisco if they don’t rebrand them and treat them as a distinct company. Is that correct?

Clark: Yeah, so from what I know the SFMTA or the organization that kind of handles this stuff was smart enough to say, to have some sort of clause that was “if there’s a change in ownership, you basically can’t do that.” So I mean, it makes sense because I think they maybe had the foresight to think there could be some acquisition, there could be some consolidation. So as much as people did like to report that this deal was the way for Bird to get in, it doesn’t really seem that way. I mean, sure, Scoot will still be here. Scoot’s going to be in. Bird’s going to own them.

Wilhelm: I saw a man on a Scoot today.

Clark: They are around.

Wilhelm: So I see Scoots, the little electric ones all the time.

Clark: Right. Yeah.

Wilhelm: I’m surprised the company didn’t do better, but okay.

Wilhelm: Let’s move on. We are going to run through a couple of big funding rounds or just interesting ones that caught our eye. So, in rapid-fire fashion, Better Up raised $103 million. Reality Engines picked up five and a quarter in the seed round. Similarly Tenderd picked up $5.8 million in a seed. Simpo, $4.5 million seed. Going to the larger side, Against Gravity picked up a $24 million round proving that VR might not be dead and we have a quote for you.

Clark: “Against Gravity focuses on dynamic game play modes where the emphasis is on user interactions as opposed to graphic fidelity.” If anyone knows what that means, please let us know.

Wilhelm: I actually have a guess which that it’s more focused on how you actually touch and play with the games as opposed to making things that are gorgeous and super, probably when you fall into something, not illuminating, not illustrative.

Chris: Immersive!

Wilhelm: Immersive!

Clark: Immersive!

Wilhelm: That’s why we have Chris here in the room.

Wilhelm: As opposed to deeply immersive and gorgeous visuals. You can probably do more of that on a high-end gaming PC than you can on a VR headset. But I thought VR had died and I was wrong. So your VR.

Clark: It seems like people think VR is dead, yet continues to raise venture capital. So maybe we should do an episode on that someday.

Wilhelm: Talk to me in early July, I’m around.

Clark: All right.

Wilhelm: Moving on. Symphony raised $165 million at a $1.4 billion valuation and this caught our eye due to an impending direct listing. Okay, Kate, what’s going on?

Clark: So Symphony is another messaging app. So I think we’re seeing kind of the rise of Slack copycats. This is more focused on a specific sector, but yeah, we’re seeing the rise of Slack competitors, copycats as we observe Slack’s sky-high success.

Wilhelm: Yeah. Other names in that space that have come and gone, Convo, to some extent was bigger back in the day. Yammer was subsumed into Microsoft. Campfire was part of the other groups’ apps. There’s been a lot of players here, but this is a lot of money. There must be some traction. And why does it have to be only Slack and Microsoft Teams? Why not three?

Wilhelm: And then finally, Local Globe has put together two quick funds. A $115 million seed stage fund and a larger $180 million opportunity fund. I want to highlight that because opportunity funds in 2019 tend to be a billion dollars. It’s kind of fun to see one on the smaller side, the more tactical.

Clark: And there was another big IPO this week. So Crowdstrike, a cybersecurity company that focuses on endpoint protection software to prevent breaches had a massively successful IPO.

Wilhelm: Yes, it was huge. It was up 65%-70% in its first day.

Clark: Yup. So, it initially priced at $34 a share Tuesday night, opened Wednesday at $65 a share, right?

Wilhelm: Yeah, give or take.

Clark: Yeah. So nearly or yeah, it nearly doubled what it had planned. So, that’s what we’ve been seeing a lot of this year. Because do you remember Zoom? Zoom was what? 90% pop? I don’t know. It was an astronomical pop.

Wilhelm: An insane amount of money.

Clark: Was. So, I did want to share some tweets from Bill Gurley. Bill Gurley, if you’re not familiar, is one of the most famed venture capitalists. He runs Benchmark, which is one of the top firms. And he doesn’t speak publicly often, so when he does, I think people listen. So he tweeted the following:

“Crowdstrike and other way under-priced deals are the true definition of a broken IPO. The stock was grossly under-priced by over 80% as there were 20.7 million shares sold. This delta represents $575 million that is absent from the company’s coffers. Imagine if a CFO, CEO gave away half a billion dollars or simply squandered it, how would that be viewed? This is similar, but it’s institutionalized and therefore everyone is numb to it and the press views a pop as a success, which is just poor financial comprehension.”

Wilhelm: Can. Don’t necessarily.

Clark: Can.

Wilhelm: And I think that’s the mistake people make here. They presume that if a company’s value shoots higher, it was under-priced.

Wilhelm: The difference here is pick a story like Lyft. Lyft just went public. It had a sharp first day, if I recall correctly and now it’s worth far less than its IPO price. So is that what Gurley wants? Because I presume that Crowdstrike is now overvalued, if you look at its valuation versus its inherent business. It’s a great company in a lot of ways, but I wouldn’t slap a $12 or $13 billion valuation on it.

Clark: I agree with Bill Gurley that these IPOs have been under-priced. But, again, I don’t like what he’s saying about the way that we cover IPO pops. I mean, the reason we’re covering them is because they’re happening and they’re worth reporting on. But it’s not because we’re saying, “Wow! This company is so successful! Look at this!” I mean we all expected Uber to have an IPO pop. It didn’t. I think at the end of the day, we’re all aware of that it’s longterm that matters more. It’s performance over a year versus two days. But again, these are events that are happening and they are events we’re covering.

Wilhelm: I mean, I think we’re often kind of misunderstanding where the public market is from a smaller investor perspective because when you do an IPO, you’re talking to people that are going to buy big blocks of shares in your offering and you sell your book on your roadshow to use the terms. But that doesn’t mean that the market itself is going to agree with that. I mean, some companies have struggled to get their IPOs put together and then seeing dramatic pops afterwards. But it’s tough.

Wilhelm: I don’t think that we should throw away the baby with the bath water. To use a cliche in this case, but I do agree that some IPOs have been mispriced. Crowdstrike, you have to argue that it’s worth $12 or $13 billion at its current level of performance. I mean, it’s growing roughly over a hundred percent year over year, give or take, for the last, I think, two years. It is showing declining losses. It’s a very attractive business. But I don’t know, it’s now at a very high revenue multiple and I don’t think that’s going to be sustainable if it shows even a blip in its growth pattern.

Clark: Well, IPOs are funding events for companies and the reason people complete IPOs is to raise money. And I think another point Gurley made is that in underpricing so significantly, Crowdstrike lost out on several hundred million dollars that it could be using to invest in itself. So I think that’s also a really important point here is that by underpricing these IPOs and not understanding the market opportunity, which it kind of seems like is what’s happening with these big, big IPOs, the companies are losing a bunch of cash.

Wilhelm: The implicit part of that argument is that you could have sold all the shares at the open price. For example, or the first day close price. Is that the case? Could you have convinced that many people to buy it? I think you could make a very fair argument here that it should have been priced dollars more per share, maybe even 10. But I think it’s very hard to say that all $575 million was left on the table.

Clark: Yes. I agree.

Wilhelm: And also, you take a very large PR risk, speaking against the press for a second, if your IPO falls under its IPO price, because it is one of the few signals that the media has in between and quarterly earnings to view how a company is being treated by the market and how to understand it.

Clark: Right. And that’s the reason IPO pricing is so difficult and why I wouldn’t want to have anything to do with it. I mean there are so many risks you take in overpricing/underpricing, but I’m just saying in the cases of Zoom, in the cases of Crowdstrike in which the stock price doubled or more than doubled on IPO day, there’s probably opportunity to have priced it higher. I’m not saying that in either case it should have been priced at its opening price, because, of course, that has a lot to do with opening day excitement sometime. Who knows? There are a lot of things that can cause really big pops so I wouldn’t go as far as to say Crowdstrike should have priced its shares at $65 a share because that would have seemed really absurd.

Wilhelm: I don’t think it would have gone out. I don’t think their IPO would have happened.

Wilhelm: This is an issue that we are going to talk about until we stop doing IPOs in the industry. This is like my fifth or eighth round.

Clark: We’re never going to stop talking about it.

Wilhelm: Yeah, I know. And I’m fine with that. I think it’s one of those things that you want to keep talking about because it is art and science to price these offerings, but I think we can come up with a rule for 2019 to understand why this happens sometimes. The market is very hungry for growth and no one’s profitable, Zoom aside. So when you are a company that is showing over 100% growth when you were going public year over year and you have decreasing operator or decreasing net losses, that is the hat trick. That is what Zoom had. It was even better than that because it was profitable. Crowdstrike had that and Fiverr, which we are about to get to, also had that. It had a very strong debut. So I think this is the magic formula that markets are not responding to well. That should be priced in and maybe Crowdstrike should have only gone up 20%. But, I mean, again, it’s simplistic to say that every dollar was lost. It is fair to say some were and in between, there lies the truth.

Clark: Okay. So before we move on to Fiverr, there’s still some more things we wanted to discuss about Crowdstrike. So just the basics, Crowdstrike had raised nearly $500 million. It was valued about $3.3 billion before its IPO. It raised about five rounds of venture capital. As Alex mentioned, it was not profitable, but its losses are falling. Its revenue is growing quite nicely year over year.

Wilhelm: And you spoke to the CEO.

Clark: Yeah, I talked to the CEO, let’s see, Wednesday, so yesterday. So companies when they go public, they will reach out to journalists often and say, “Hey, do you want to interview the CEO?” And you’re, “Yeah, that sounds great. I’m covering the IPO. Why would I not want to talk to him or her?” And the catch is they give you 10 minutes. So you have about 10 minutes. In this case, I had 15 minutes to ask George Kurtz is his name 15 questions that I had written down that I wanted answers to. So you’re just going as fast as you can. I mean, just question after question after question, trying to get some interesting comments. You can read the Q&A that I had with him. It’s on techcrunch.com. I’m trying to think what the most interesting takeaway was.

Clark: He compared Crowdstrike to Salesforce. He has grand ambitions for it to become the go-to cloud data platform for security. He basically said that his competitors being incumbents like McAfee.

Wilhelm: McAfee.

Clark: Yes, I never pronounce that one right. McAfee and Palo Alto Networks and some others. He was, “Well, they’re not able to meet their financial targets and transition to the cloud at the same time. So they’re pretty much screwed and we’re not.”

Wilhelm: Oh, so they’re trapped between worlds, essentially.

Clark: Exactly.

Wilhelm: And they can’t make the jump. It’s really like Oracle right now trying to move to the cloud.

Clark: Right. So it makes sense and everything he said was very logical. I understand why Wall Street was so interested in CrowdStrike’s IPO. Definitely seems like it has a good hold on the market.

Wilhelm: Cybersecurity is hot right now.

Clark: It is.

Wilhelm: I forget who raised it, but there was a $300 million round in cybersecurity this week, along with this amazing IPO.

Clark: There’s been a lot of rounds.

Wilhelm: It turns out, all that data we made, in the era of big data, needs to be secured.

Clark: Right. Actually, I mentioned this in the story I wrote. Venture funding in cybersecurity hit a huge peak last year. I’m certain it’s going to surpass that record this year. I’m also pretty certain it’ll continue to do so for the new several years. There actually haven’t been that many cybersecurity IPOs. There’s only been one other one this year, it was an Israeli company.

Wilhelm: Mm-hmm (affirmative). Carbon Black was-

Clark: Last year.

Wilhelm: 2018.

Clark: Carbon Black, Tenable, and one other last year. Generally, it’s not like enterprise software. There are fewer, so perhaps that’s why there’s a lot of excitement there.

Wilhelm: Just to throw a little more light and color on the awkwardness of these phones calls you do to the CEOs on IPO day, they are roughly as much fun as earnings day calls with CEOs or executives. Which, you have the same 10, 15 minutes tops. You have someone who wants to answer your questions, but who’s PR team is in the room with them, looking over their shoulder as they talk to you on speakerphone or whatever.

Clark: That’s a thing with almost all interviews with tech CEOs, is that there’s so much press. I agree. The biggest challenge, from a journalist perspective, is just to get them to say something that they haven’t already told everyone else. I can’t say that I felt like I succeeded this time around. I read a bunch of the stories of the outlets he spoke with, and everyone made the comparison to Salesforce. Unlike Susan on YouTube, he’s very well prepared. He knows exactly what he’s going to say.

Wilhelm: I only do pretty much one earnings call per quarter now. It’s with the COO and co-founder of Okta, Frederick something. I forget his name now, it’s going to kill me. He listens to the show. It’s great, because he’s a man of huge enthusiasms, so it’s a great, fun call. We talk about the market for SaaS, and I get a better feel for what’s going on. It’s worth my time. You can tell he has to stay in his lane, because it is a public company. There are rules about disclosures and things you can say. You can get in actual trouble. It’s hard to build a rapport, and get something good out of these. Yet, we keep doing them. That’s journalism for you.

Moving on, Fiverr has gone public as well. This is the company that had the relatively … Remember the ads that were like, “If you don’t sleep and only drink coffee, Fiverr.”?

Clark: I really don’t. I don’t know anything about Fiverr.

Wilhelm: It was big in the New York subway ad scene. They were dystopian.

Clark: I don’t have much exposure to the New York subway.

Wilhelm: Well, you’re on Twitter.

Clark: Well, what does that …

Wilhelm: New York people complain about the subway all the time. I’ll start again. Fiverr went public. It is a platform that lets people buy and sell short-term jobs. I believe they were for $5 back in the day. Now, they’re for a variety of price points. They were projected to price between 18 and $20 per share. They priced at $21, so above the range. According to some reports that I’ve read, they were worth around $650 million when they wound up going public. They were sharply higher, again, 70%, or whatever it was, above their IPO price. Similar dynamics to the CrowdStrike success. It had revenue growth, not as strong, to be clear, but it also had decreasing, I think it was net losses, on a year-over-year basis. It had the growth, it had the path of profitability. Investors liked it, but Fiverr is not as big as CrowdStrike, or as impressive as it. To see it do this well shows there’s a lot of pent-up demand for growth shares. I think that goes to show that the IPO market today is honestly, even post-Uber, pretty hot. Which, I think, surprises some people who thought that Uber was indicative of a slowing IPO climate. Turns out no, it was just Uber itself that was the problem. That’s that.

We are now going to move onto a bit of a debate, which is Chewy and dual-class shares. Really quickly, upfront, Chewy will price today. It may have priced while we’re on the show, actually. It’s supposed to trade tomorrow. Looking between 17 and $19 per share, so expect to hear more probably from Kate next week. This brings up a pretty important thing about how companies are coming public with differing number of votes per share. Kate, what’s going on?

Clark: There’s been a noted increase in the number, especially technology companies, that are going public with a dual-class stock structure. For those that aren’t familiar with what that is, which, super reasonable if you’re not, because I wasn’t really familiar with this concept until a few months ago. Issuing dual-class shares means a company can issue the public shares with little to no voting rights, while executive and BCs or insiders hold shares with more voting power. Or, all the voting power of a company. CrowdStrike did this. They offered class A shares that each had one vote. Those were offered to the public. Internally, they offered class B shares, and those had 10 votes each. I don’t know if you remember, but when Snapchat when public, it was a huge debate, because they gave the public no voting shares.

Wilhelm: Sucks. Zero votes for you.

Clark: That’s, of course, on a completely different extreme, but there’s a really good … I’ve been doing some research on this, just because I’m interested in learning more about it. I found that there’s not a lot of stories out there that really explain the debate, why this might not be a good thing, especially for public shareholders. There’s a good piece in the Harvard Business Review, and they propose something called a sunset clause, that would require companies to be able to debut with dual class. After, say, there’s no set time, but five years later, they would have to remove that structure. Then, issue equal votes.

Wilhelm: Why not just start with a functional set of shares and rights, and have good governance from the beginning? Be answerable to your board and the investing public.

Clark: See, I asked that CEO of CrowdStrike that. I basically was like, “You know there’s debate here. People don’t think this is fair.” He was like, “Well, I think it’s right. If you were a founder-led company,” which he is the founder of CrowdStrike, “I think it’s okay, because founders have had the vision from the beginning. They were there …” His quote was like, “I was here when we were 23 slides, and here I am today. I’m still the CEO. I have the long-term vision, whereas Wall Street, or the public markets, or shareholders, they are much more fickle.”

They’re operating much more in a day-to-day basic. Whereas, a CEO, in theory, is thinking many years ahead. Perhaps, the CEO should have more control and more power over voting rights, because he’s a bigger believer in the mission. He has the vision, blah blah blah. In the case of Evan Spiegel, of Snapchat, it actually didn’t work out very well because he made a lot of bad decisions. Perhaps, had there been equitable voting rights spread across, he wouldn’t have screwed up quite-

Wilhelm: Been able to do … Yeah.

Clark: Yeah. He wouldn’t have been able to screw up in the way that he did.

Wilhelm: I think the founder fetish that we have, from Silicon Valley, is fine, as a private company setup. I think when you import it to the public markets, it’s a bit of a misfit. We’re watching Facebook right now, which was the example people held up of, “Well, Facebook without Mark, what’s that?” Now, we’re seeing some seriously large problems brew over there, while he retains an iron grip on the company, and you cannot do anything about it. Tough.

Clark: Yeah. In my opinion, it feels like this isn’t a concept that’s discussed enough. It’s not new, but it is happening more often. I think that we should draw attention to it. Not to say that it’s wrong or bad, but just to have a nuanced conversation about the pros and cons of doing this. Especially with no voting shares, which I think is just insane.

Wilhelm: I think it’s honest. I think giving the public one vote per share, and giving yourself 10 so you retain greater than 50% of voting is a sop. I think it’s ridiculous. Just fly under your own flag. If you don’t want to share any control, then don’t. If you want to have a company with a functional governance, that adheres to historical norms for how this stuff works, then have votes. This 10 versus 1 thing is a fracking farce, because I can’t swear on this show, so you can fill that in yourself. If you want to look at a historical example of a company that didn’t have this setup, it was Amazon, which historically thinks far ahead, and has done fantastically well. It’s public company growing from a, I believe, under nine-figure revenue. The idea you can’t do it is trash. The idea that it always works is wrong. To me, it’s dishonest. If you’re going to sell shares, go public, and float, share the voting power with your shareholders. Don’t treat them like children, and you like a god. You’re not.

Clark: Alex is getting really worked up, but I totally agree with you. That’s why I want to-

Wilhelm: I’m not worked up, I’m angry.

Clark: That’s why I wanted to talk about it though, because I think it’s important. I think what you just said is a perfect summary of why it’s messed up. The only thing I think that will really change this, is to see whether these dual-class stocks, versus single-class stocks, perform differently on the market. As far as I know, they’re not, which means that people don’t care. Or, people don’t know, I don’t know. If a company isn’t going to lose any money doing it … If they’re not going to have any consequences whatsoever, they’re not going to be up against any negative feedback from shareholders, then of course, they’re going to keep doing it. Like I said, it’s not really talked about very much.

Wilhelm: No. Well, it’s super niche. This is something that you and I care about, and the listeners of Equity. We’re a relatively–

Clark: I hope the listeners care. Sorry.

Wilhelm: Yeah. Sorry. If everyone’s turned off by now, no one’s going to hear this part. They’re like, “Oh, crap, it’s dual-class.” It’s a rising issue, because more and more value in the public markets is trying to pretend like it’s a private company. Which, I don’t think is the way to go at it. What we can do though, is do a longitudinal test, of looking at companies with dual-class structures over time, in, like, five years from now, and see if they performed better or worse than either market comps, or the market as a whole, and we can see. We can test this out. We can take a look at it. Hard to do today. I don’t think the infantilizing public companies, and having god-like founder control, is the way forward.

Clark: Didn’t we talk about this when we had Phil of All Turtles on?

Wilhelm: Yes.

Clark: I’m just remembering.

Wilhelm: Well, that was one of the best episodes we’ve ever had.

Clark: Right. Everyone should go, if you haven’t heard that one, it was really good. Actually, I saw him at Code.

Wilhelm: Phil Libin.

Clark: Libin, yes.

Wilhelm: Formerly of Evernote.

Clark: Yep, former CEO of Evernote.

Wilhelm: Then, he was at General Catalyst for a hot minute. Then, he quit, because he didn’t want to do it. Now, he’s doing All Turtles. I think that’s correct.

Clark: Anyways, I think that’s all for today.

Wilhelm: Yeah. I spun that out, because the moment I say goodbye, I’m not back for two weeks. I’m going to get podcast withdrawal. I’m going to miss you guys.

Clark: Please, have a great wedding. Good luck not going on Twitter.

Wilhelm: Yeah, thanks. I guess I’ll talk to you in a while.

Clark: A couple weeks.

Wilhelm: All right. Bye, everybody. Have fun.

Clark: Bye.