By Beth St. Clair

Overheard: “I deleted all my social media accounts. But I kept my Snapchat account. That’s why it’s worth buying.” – As spoken by a millennial.

But what exactly are Snap’s investors, like this one, getting?

You may be aware that Snap Inc., the parent company of Snapchat, had its initial public offering (“IPO”) on March 2 of this year. The IPO, heralded as the “single most anticipated surefire IPO of 2017,” represented a rare breed of juggernaut tech IPOs, comparable to those of Facebook and Twitter.

Snapchat, like Facebook and Twitter, provides a social networking service. Its main product is a phone application through which you can send a photo, video or text message that “self-destructs” after a few seconds of a person viewing it. A large part of Snapchat’s allure is the many filters that you can apply to the message before you send it, such as making yourself look like a dog as well as the ability to post pictures and videos to your “story” which friends can view. See a related WJLTA Blog post here.

Interestingly, thanks to Snap’s IPO, many millennials have made the decision to become first-time holders of a publicly traded stock. Perhaps regardless of whether Snap is a prudent investment, some, like the one quoted at the beginning of this article, have snapped the stock up simply because they are fans of the product. Their purchases are thus based off consumer-loyalty: “Snap just felt like the IPO of my time”.

However, getting into the public financial markets with Snap stock as one’s initial purchase is an interesting choice. This is because the stock is unconventionally restricted, with no voting rights given to the 200 million shares floated in the IPO. Thus, these public shareholders won’t be able to vote for board directors or executive compensation, and arguably will have little to no influence on how Snap Inc. is governed.

Snap’s offering of such vote-less stock is meant to keep more control in the hands of its founders and majority shareholders, and it is the first of its kind in the U.S. While individual investors may never use their voting rights and therefore may not make investments based off of the lack of those rights, some institutional investors have argued that vote-less shares represent a “banana republic-style approach” to governance that ultimately leaves too much power in the hands of too few. Essentially, they argue that shareholders will be “completely hostage to the actions of management.”

Some say the simple solution to the entire situation is to not buy Snap shares. But is that enough investor protection? Others argue that it is not, and that Snap’s offering is the catalyst needed to stop a 30-year  “listing standards race to the bottom.” Calls have even been made to the Securities and Exchange Commission (“SEC”) to disallow other such IPOs in the future.

However, the SEC may be hesitant to make the U.S. IPO process any more difficult than it already is for several reasons. These include the recent election of President Trump; extreme competition from listing services abroad that have no problem making such vote-less offerings; and the dearth of U.S. IPOs in 2016. Indeed, Jay Clayton, whom President Trump has nominated to chair the SEC, recently stated that “[w]e have to reduce the burdens on becoming a public company.”

In sum, regulatory uncertainty in the face of a presidential administration overhaul and consumer demand for IPOs may make the SEC hesitant. Furthermore, mere time is needed to determine whether the lack of votes is truly detrimental to Snap’s public shareholders – if it is even possible to show such a thing – or if it makes no difference.

One thing is for certain, despite the lack of votes, many investors haven’t snapped, crackled or stopped from from investing in Snap.

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