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Zynga proposes "unprecedented" stock structure for IPO

Fri 26 Aug 2011 8:44am GMT / 4:44am EDT / 1:44am PDT
BusinessPublishing

CEO Mark Pincus to get 70 times more voting power than IPO investors

Zynga is altering its stock structure to give CEO Mark Pincus 70 times more voting power than anyone buying shares in the company's planned IPO.

According to documents obtained by Bloomberg, the Zynga board approved a three-tier stock structure that increases Pincus' votes per share from 10 to 70.

Current stockholders will get 7 votes per share, with public investors entitled to a single vote.

Lisa Buyer, a principal at the IPO advisory firm Class V Group, told Bloomberg that, "Zynga has invented something new," calling the three-tier structure "unprecedented" for a technology company.

Buyer advised on Google's IPO, which gave buyers a tenth of the voting power of founders Larry Page and Sergey Brin - the same balance found in two other major tech IPOs this year, LinkedIn Corp. and Zillow Inc.

"Maybe there are so many early employees that even 10-to-1 would put the ultimate decision power in the hands of too large a group of employees or investors," Buyer added.

However, despite volatile market conditions that caused the retraction of a number of planned IPOs, Nitsan Hargil, research director at GreenCrest Capital Management, told Bloomberg that the stock structure won't scare away investors.

"Zynga is holding the trump card here in that they do not need the IPO," he said. "This is the kind of company that the market needs more than it needs the market."

Zynga's current shareholders have been asked to agree to the proposal by September 2. It will take effect in conjunction with the IPO.

12 Comments

Taylan Kay
Game Desginer

59 93 1.6
"This is the kind of company that the market needs more than it needs the market." So the market needs an overblown burst-prone bubble more than Zynga needs a couple billion dollars? Yup, sounds like the market I know.

Posted:3 years ago

#1

Tim Carter
Designer - Writer - Producer

556 292 0.5
Why does Zynga need to be public to begin with?

I can see a mining company needing to be public. To put in even a small mine you need $250 million or more.

But to make a new Farmville game? That's a couple hundred thousand at most.

Posted:3 years ago

#2

Tim Carter
Designer - Writer - Producer

556 292 0.5
Also, if the voting power goes down, the worth goes down.

Posted:3 years ago

#3
Wow if Facebook/Social games do turn out to be a fad, Zynga have no DNA in their company to do anything else and now if that situation does happen the shareholders will have no control.

It's a gamble but they are making a lot of money at the moment and with China and India there is certainly room to grow.

The bigger question is how much is Facebook making off all those 30%s and advertising from the likes of Zynga.

Posted:3 years ago

#4
This is real Farming on the stockmarkets. Will the farmville formula work in real life. hehehe

Posted:3 years ago

#5

Wesley Paisley
Chief Technical Officer

5 0 0.0
^ A lot.

Posted:3 years ago

#6

David Robinson
Product Manager

3 0 0.0
@John Owens:
Zynga does have DNA to do things that are useful in the tech industry which aren't directly related to a social bubble. The ones that immediately come to my mind are big data and web analytics. Both of these things are being done elsewhere, but with respect to web analytics, most systems in other industries are pretty elementary compared to what you need for even a very basic social game.

If you want to see how much Facebook is making off Zynga, just look at their reported revenue and take some percentage of that. I doubt Zynga is paying them 30% off of their FBC revenue, but they are spending a good amount of money on ads.

Edited 1 times. Last edit by David Robinson on 26th August 2011 6:27pm

Posted:3 years ago

#7

Curt Sampson
Sofware Developer

596 360 0.6
Why does Zynga need to be public to begin with?

It may be that earlier investors want to cash out, and Zynga doesn't have the cash to buy them out.

Posted:3 years ago

#8

Andrew Goodchild
Studying development

1,235 396 0.3
I would guess it's more to do with the fact that when they go public, Mr Pincus becomes incredibly rich (I'm sure he's not short of a quid now, but a large successful company going public generally makes the old owners very comfortable, and means not all of his money is tied up in the company), and the early investors make a whole lot of profit on their investment. Any venture capitalists will have wanted an exit written in the business plan.
Also, if like some argue, it is a bubble, then cashing out whilst it is at it's most inflated is a quite smart thing to do.

When a company like Atari went public, it was the start of the end, sacrificing innovation for profit maximisation. But Zynga, will anyone notice the difference?

Edited 1 times. Last edit by Andrew Goodchild on 27th August 2011 12:16pm

Posted:3 years ago

#9

David Thompson
Game Designer

3 0 0.0
@John Owens
I'd also point out in addition to Mr Robertson's comments that Zynga has snapped up many industry veterans from the games industry which adds to their DNA. For example the former EA Los Angeles team that created Command & Conquer 3, Red Alert 3, etc they created Empires & Allies and work for Zynga now. I would not underestimate Zynga at all they've got plenty of options, experience and the capital to survive even if the bubble does burst on them.

Posted:3 years ago

#10
Well Zynga's over ambitious IPO is delayed till Novembers, with the probably strategy to maximize its stock options/valuation aiming for a 15-20bn IPO. Overvalued for sure, but they reckon tech hungry investors are gagging for it

Posted:3 years ago

#11

Andrew Ihegbu
Studying Bsc Commercial Music

440 146 0.3
Well looking at the other report stating how much Zygna's profits are (predictably) falling, I would hedge my bets on that IPO being much closer to the 15bn mark than 20 now.

They better cash out soon, I can see it going downhill very quickly. In fact, in my circles at least, facebook games are increasingly looking like a fad to me. Almost nobody I know still plays them.

Posted:2 years ago

#12

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