Shareholders Will Have Just About Zero Control Over Groupon And Zynga

andrew mason

Mark Pincus and Andrew Mason are walking into their November IPOs controlling massive amounts of voting power in their companies, the Wall Street Journal reports.

Both companies have “super-voting” stock structures which give outsiders almost zero influence over the company.

Pincus controls almost 39 per cent of the voting power in Zynga. Investor Kleiner Perkins Caufield & Byers controls around 8 per cent. Zynga executives and directors control more than 50 per cent of the voting power in the company.

Mason will control nearly 20 per cent of the voting power in Groupon after it goes public. All its executives and directors will control nearly 60 per cent of the voting power after the company’s IPO.

This isn’t a totally new concept, but it is interesting that these are the only two IPOs with a super-voting structure scheduled for this year.

It shouldn’t affect the stock. Shareholders almost always have zero control over the company and own tiny fractions of a percentage of the company. Most of the voting power is reserved for the founders, original investors or funds that have purchased large parts of the company.

For example, Reed Hastings still controls 5 per cent of Netflix while Fidelity Investments controls 8 per cent. But, do you think Fidelity could really push Hastings out? Or really control the direction of the company?

Take a look at Research In Motion, or Yahoo. Investors have agitated for changes at those companies for years now, but nothing much has happened because the founders still have big stakes.

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