Qubit: Research on Dual-Class IPOs
This paper states that founders have more control of their companies at IPO because of cloud computing and availability of capital.
Yes, cloud computing made it cheaper to start and run a startup.
Yes, lots of capital made it easier for startups to fundraise lately.
But what is not acknowledged in most research is how much more skilled and experienced founders and their teams are in building and scaling companies.
“We demonstrate that the rise of dual-class structures is mainly due to founder-controlled firms in the software and services industries and foreign-based firms. We show that the main factor that predicts dual-class structures and a greater wedge is the amount of available private financing for startups. The more outside opportunities the founders have, the greater their bargaining power when raising capital. Therefore, they are better able to retain control of the firm after the IPO. We also document a decrease in VC firms' aversion to dual-class structures and attribute it—at least in part—to the reduction in the costs of doing business due to technological advances in the software and service industries. This finding is consistent with the idea that when there is a lower need for financing, founders are less likely to relinquish their power to VC firms.”
Source:
The Rise of Dual-Class Stock Ipos
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