A few days ago I wrote down a few notes making a bullish case for Palantir, searching to find good news amidst the company’s huge historical deficits.
Heading into the next phase of Palantir’s march to the public markets, I was very curious to see how the company would hone its S-1 filing to give itself the best possible shot during its impending debut.
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And we finally did get a new S-1/A filing, a document that our own Danny Crichton quickly parsed and covered. What he found was a set of amendments that seem to increase the chance that three Palantir insiders will control more than 50% of the company’s voting power forever, possibly making it a controlled company, which would loose the firm from select regulatory requirements.
Danny dryly noted that “given the diminished voting power of employee and investor shares, it is possible that these voting provisions will negatively impact the final price of those shares.” That’s being polite.
Mulling this over this morning, I kept thinking about Snap, which sold stock in its IPO that gave new shareholders no votes at all, and Facebook, which is controlled by Mark Zuckerberg as his personal fiefdom. The two are not alone in this matter. There are a number of other public tech companies that provide certain groups of pre-IPO shareholders more votes than others on a per-share basis, though perhaps to a smaller degree than what Facebook has managed.
It feels like many startups (and former startups) have decided over time that having material shareholder input is a bad idea. That, in effect, they must run companies as not merely monarchies, but unquestioned ones, to boot.
I am not entirely convinced that this is the best way to create long-term shareholder wealth.
If you are on the other side of this particular fence, I understand. After all, Facebook is a global juggernaut and Snap has finally managed to eke out stock-market gains to bring its value back around to where it was when it went public. (A three-year journey.)
But those arguments are only so good. You could easily argue that the two companies could have done much more with less self-sabotage (Facebook) and a bit more spend discipline (Snap).
Facebook can’t stop kicking its own ass by making what appear to be obvious errors. The company just blew its goodwill with the VR community after helping keep the industry alive. Congress hates it. The American right has managed to convince Facebook that it needs to bias itself in its favor (while claiming that their posts and viewpoints are suppressed) as the social giant does nothing, apparently neutered from the inside. And the company is diluting the uniqueness of its other major platforms in a bid to unify them and, it appears, fend off a regulatory-driven breakup.
But, sure, the near-term EPS results look good.
What could Facebook look like today if it had had more external input through time?
Snap is a similar mixed bag. Sure, the company has managed to claw back above $20 per share, but its financials are still a mess. Snap lost $310.6 million off of revenue of $454.2 million in its most recent quarter. Its operations consumed $66.6 million in the quarter, contributing to negative free cash flow of $82.3 million. The company’s adjusted EBITDA of -$95.6 million was similarly unimpressive. And the company is now $1.6 billion in debt after raising convertible debt twice.
Snap is growing, and that’s good. And it is losing less money, which is good. But the company is still incredibly unprofitable, has provided a minute return since its first week’s trading and investors have had just about nil chance to try to force change at the company that they own a piece of.
Is this the best result that could have come from Snap’s early momentum, or could more external input from shareholders have helped?
Palantir, which is also growing — but losing lots of money, though less over time — wants a piece of that action.
The question is, do you believe in at least lip-service to democracy, or do you really want to elect a king — and it’s always a king, I think — to run a company effectively as their family business? Perhaps Elon really is your jam, even if his hijinks are rabidly to the detriment of the hard work that the staff of Tesla actually do, day after day. Call me American at heart, but I don’t want to bend the knee.
Deciding pre-IPO that you refuse to share any real power with external shareholders is effectively going public but giving up halfway through — letting the rabble buy a share or two, but freezing them out of any influence.
It’s gross, and, I think, a bad mark on companies that pursue it, a middle finger to everyone but their founder and current executive lineup.
Will Wall Street will keep following tech’s Napoleons as they ride around in front of their employees troops, proud that only they can lead them. Sure, but Napoleon wanted to be emperor and I doubt that sort of desire converts well to corporations over the long-term, as succession woes and unstoppable from-the-top mistakes can knock any company off the rails. Fish rot from the head.
And aren’t tech founders always complaining that public investors can’t see their long-term perspective? Odd to hear from folks who have managed to turn from butterflies back into slugs, pursuing corporate dictatorship over multi-party democracy.