As Snap gets ready to go public with a $20 billion IPO, the underlying story may escape casual observers. The founder of the company that owns Snapchat, Evan Spiegel and Bobby Murphy, own preferential shares that give them 10-to-1 voting rights.
That’s very unusual. The reason goes back to the company’s early days. Spiegel’s father was getting tired of paying Snapchat’s bill as his son was completing his studies at Stanford University. So Spiegel and Murphy found a venture capitalist, Jeremy Liew of Lightspeed Venture Partners, who came up with $485,000 in two weeks. The young startup entrepreneurs agreed.
Little did they know that it was a pact with the devil. In an agreement that signed their souls, they gave up essentially the rights to accept other investors and essentially running their own company. Eventually they managed to buy Liew off with an 8 percent share that may give Lightspeed about $1 billion when Snap goes public. But he no longer has veto rights in the company.
Understandably, the company is not very keen on discussing the dark side of its success. But here is the lesson Spiegel learned when you are presented with documents that lawyers tell you are “all standard”: “When someone says something is standard, just ask why, and why and why and why, until you really understand intricately, I think, how the deal is structured.”