LinkedIn sought to capitalize on the pent-up demand for social media companies by announcing Tuesday that it would boost the offering price of its shares by 30%, implying a market capitalization of more than $4 billion.
Shares of the social networking site for business professionals are expected to begin trading on Thursday at an offering price of $42 to $45 a share. Interest is likely to be strong, despite the use of two classes of stock that will concentrate voting control in the hands of co-founder Reid Hoffman and the VCs who financed the company’s rise.
LinkedIn is the first major social networking startup to enter the public realm, and its IPO could test the reception that the more popular Websites Facebook and Twitter will receive when they choose to launch shares. It also might offer guidance to both companies – as well as Groupon and Zynga – on the use of multiple classes of stock.
According to documents filed with the Securities and Exchange Commission, LinkedIn’s Class A shares being offered to the public will have less than 1% of the voting power of its Class B shares. Outstanding Class B shares will have 10 votes a piece and together account of 99.1% of the voting authority, with co-founder Hoffman’s holdings making up 21.7% of the overall vote. The company had 89.9 million shares of Class B stock outstanding as of April 15 and is selling 7.84 million Class A shares.
Other holders of Class B shares include Sequoia Capital, with 19.3% of the vote after the offering, Greylock Partners, with 16.1%, and Bessemer Venture Partners, with 5.2%, according to SEC filings. Together with Hoffman, they control 62% of the vote.
IPO experts frequently take exception to dual-stock structures. This is because investors or executives, such as Hoffman, can find themselves in sticky situations. For instance, what if Hoffman, a partner at Greylock, finds himself voting on a LinkedIn acquisition of a Greylock portfolio company? Will he abstain? If he does, won’t the company lose his expertise?
LinkedIn had earlier said it would sell its shares at between $32 and $35. The increase suggests underwriters are expecting strong demand.
However, these interested buyers would be well advised to examine the dual-stock structure so they know what they are getting into, and because they might be sending a message to future IPO candidates.