Founder Control

I will start this post by stating that I am very much in the “one share one vote” camp.

That said, I have supported founder control provisions, like the one that Mark Pincus put in place when he took Zynga public back in 2011.

Mark wanted to put those provisions into the Series A deal when we co-led the first venture round at Zynga.

I was not a fan of the idea then, but when the Company got ready to head into the public markets, Mark made a convincing argument that a founder would have the long-term interests of the company at heart, whereas the public investors would not. And so Mark has controlled 70% of the voting stock at Zynga for the last seven years while his actual ownership is now around 10%.

I am telling you all of this because yesterday Mark did something that many thought he would never do.

He converted all of his super-voting shares into common stock and returned Zynga to “one share one vote.”

Mark explained his thinking on that decision here.

I am certain many will read more into this move than is actually there.

What I see in this move is a founder who still cares deeply about the company he started deciding that he doesn’t need to control it anymore.

And so he set it free.

Such a beautiful gesture.

Like I said in my tweet about this yesterday, it is a bold move by one of the boldest founders I know.


Comments (Archived):

  1. William Mougayar

    It also sounds like Mark is also ready to move on to other interests beyond Zynga.

    1. fredwilson

      Yes. Very much so

  2. JimHirshfield

    TIL Zynga is 11 years old. Wow, time flys when you’re playing Words with Friends.

    1. William Mougayar

      you can farm on it.

  3. jason wright


  4. LIAD

    our actions can simultaneously be self-serving and virtuous too.the fact the act may be driven by self-interest doesn’t take away from it’s value.”if you love something, set it free’

    1. fredwilson


      1. JamesHRH

        How long is his common stock locked up?

        1. jason wright

          nice try.

    2. LE

      “if you love something, set it free’I remember hearing that expression in high school when a friend’s girlfriend broke up with him. He wasn’t a particularly good looking guy and the girl never came back. I remember he used that expression at the time. Years later he got his medical degree and is now a somewhat prominent physician. No problem getting women. They flock to him in droves. People ‘come back’ when there is a feature or benefit they like it turns out. I guess the high school girlfriend did him a favor by dumping him.In business that concept was used by Lee Iacocca (holy shit he’s still alive and he’s 93) when he was turning around Chrysler. There was a commercial they did ‘and if you can find a better car, buy it’. They should have – the cars still sucked.The quote tries to relate more to enforcing non-controlling behavior. But the truth is the fair and right thing typically doesn’t happen because people think in their own self interest more often than not. So you generally don’t want to give up any control unless there is a compelling reason to do so (of which there are many to be sure).

    3. Vendita Auto

      Did not work with my ex wife’s divorce attorney

    4. Joe Marchese

      ‘Enlightened self-interest’

      1. JamesHRH

        Please. He’s got other things he wants to do.Plus, if Zynga goes sideways while the current structure exists, he’s on the hook.

  5. TeddyBeingTeddy

    My read: he’s either giving in to short term result pressures, or planning to eject.

    1. JamesHRH

      He has ejected his time, his payday will be next.

    1. sigmaalgebra

      Naw: They can get sick, come back, get well, leave again, get sick, come back, get well, leave again, etc.

  6. PhilipSugar

    Really interesting dynamic.I always say when things are going great, it doesn’t matter.It is when the proverbial shit hits the fan are when things get tough.So then it comes down to two questions:Is the founder the right person??orDo the investors need to take control??The answer is not clear, but there is one thing that is: Whichever side has control will take it.

    1. LE

      I also dispute 100% the notion of ‘best interests of the company’ as a valid reason w/o looking at alternatives or the down side. [1] What else? People change over time. Someone who is perfectly capable and operating at full machine speed at the time the company goes public can change to a state where their needs and what they care about (and their health) changes and then there is no easy way to get things done. It’s stupid as a business decision.[1] The example that I will use is of the carnival operator who tells you that if the ride wasn’t safe he wouldn’t let his own kids on it.

    2. JamesHRH

      Well, things are doing great so Mark is letting go of the wheel.So I guess this gesture doesn’t matter Phil.

      1. PhilipSugar

        I am making a general comment not referencing this situation at all.And while we are at it LE can look up….Mark spend a ton of time at my fraternity house. First head of Biz Dev: Andrew Trader fraternity brother got pushed out at the exact right time. Next? Somebody named Greg Sugar (think I know him?)I might just know a bit about Mark. I have no comments.I am making a simple, but important point. Remember I take the entrepreneurs side.Super-voting shares is an very important point for entrepreneurs. When Facebook pulled the rug out without those shares Mark is gone forever.Is that right or wrong? No way of knowing. Hindsight says it might have been really good he had those, but who knows. But he did stick around.Let me tell you exactly what happens: You own let’s say 25% of the company five other investors each own 15%. Things go bad. The investors don’t have years of their lives invested, their vision which produced the company, they just have money. They don’t have control unless you get pulled and they bring in somebody that is beholden to them because that is they way they are going to get paid……..What do you think at least four out of the five investors do?Fred went along with this so no retraction is needed.

        1. JamesHRH

          I have no beef with anything that occurred, other than Fred describing a guy going to the pay window the only way he can as ‘a beautiful gesture’.Gag.Come on.

  7. David Miller

    This is the next step in the multi-step process of reducing his stake in the company. I don’t know but would guess that the only class that trades is Common and he has to convert to start any meaningful selling. The company may be improving operationally but the share-price hasn’t really moved in 5 years. He’s positioning himself to be a seller on the way up if the price reacts to the improving performance. Time to move on.

  8. GlennKelman

    When you say the company is me, it not only limits the company, it limits you. Mark is bigger than Zynga. Zynga is bigger than Mark.

  9. JamesHRH

    I had it the other way round – he is no longer going to put much effort into the company and feels it is wrong to control it.Either way, an unusual move.ON YESTERDAY’S POST ABOOT CANADA EH!!!Please drop the kinder gentler version of the US bullshit. CANADA is NOTHING like the US.It’s incredibly superficial and offensive.American culture is focused on the individual. Canadian culture is focused on the British idea of ‘cutting down the tall poppy’. Americans celebrate individual self realization and success, even if they take joy in the fall of a high riser, they always also celebrate and accept the third act re-emergence. Canadians who achieve do 1 of 2 things: leave or keep their success on the low down.As an example:Buying a house in Canada is easy, follows a process defined by the government, including Title issued from the government title registry and is no different emotionally from buying a Happy Meal or getting your teeth cleaned. Professional, but blah.In the US, it’s unregulated and private but also disastrously complex due to knee jerk reactionary tack on legal requirements, involves ancient private title searches and the deal is always in doubt until the money hits the account but it also celebrates the Purchaser as if the entire culture revolves around people having and spending capital ( which it does ).Sorry for being a day late – lots going on yesterday.

    1. LE

      ‘cutting down the tall poppy’Related concept: Men vs. Women at least in this country and from what I have observed over time.Men celebrate other men who have done well (in general as always). They look up to them and want to be around them. For good and for bad reasons. And older men are not turned off by younger or less successful men who (edit: suck up to them) and exhibit this behavior (not in a gay way I mean). They like it and understand it.Women on the other hand tend to be more jealous and envious of women who are either better looking, younger, thinner, married to a ‘better’ guy. So in contrast they are more attracted to women who are not threatening in some way (physical appearance).I thought about this the other day when I read that Megan Kelly isn’t doing well in her new job. While there are many reasons for this to me the #1 reason and tipping point is that she is threatening to other women. She is not Hoda Kotb, Kathie Lee, Hillary, Oprah, Savannah Guthrie, Kate Snow the list is endless. She is not Meg Whitman. She has that appearance that to me screams “I can get your man if I want”. The high school cheerleader. I know that sounds crazy but at the core that is what I think is going on. Compared to FOX the potential audience she has now is both younger and more female plus she has been elevated by her pay in a way that tips the scales.Men are envious and less jealous. Women are more jealous than envious. Something like that.To confirm what a genius [1] I am I just pulled up this article today which proves my point:…[1] Men can get away with saying things like this.

      1. cavepainting

        You are making a great distinction between envy and jealousy and how the suffering in people’s minds have a different flavor based on gender.But suffering is suffering and it is bad irrespective of what it contains. Not because of any moral reason, but for the simple reason that you are killing your own peace and happiness.The extent to which anyone suffers is really based on how their minds connect their state of happiness or the lack thereof by comparing what they have with what someone else has. (Or the anxiety of losing something they have).Man or woman, we all need to stop doing this or at the least be more aware of how our minds work. The mechanics of the code is generally the same and the more one becomes aware of the code in his/her mind, it also becomes possible to see the code in others.

        1. LE

          we all need to stop doing thisIt’s an emotional reaction which is why on a widespread basis it’s near impossible to stop. And it is being reinforced by weaker members of the group and therefore becomes even more difficult to do. So it’s both an individual and a group problem.The next time someone asks you to attend an event that you don’t want to attend think about why you avoid either telling them the truth or doing what you want. Sure this depends on the person asking and the relationship. But at the core there is some fear that is near impossible to overcome (say with a parent it could be ‘the evil eye’ or disapproving voice).

          1. cavepainting

            yes, but that is the real goal of spirituality, or whatever we want to call it. Move from compulsive reactions to conscious living. Be the master of our mind and ego than be a slave to it. Hard of course, but first step is acknowledging that there is a problem with our minds that makes happiness and joy difficult and life miserable.

  10. awaldstein

    Nice, unusually transparent and as it should be.We should always do what we add value to and walk away from the rest.

    1. JamesHRH

      I agree 100%.But we should call it that and not a ‘bold’ move, especially when its a move that creates a PayDay.

      1. awaldstein

        much ado about nothing to me.can’t engage in this discussion honestly.

        1. JamesHRH

          I really like that last line.As for the it not being a big deal, I think one of the things that plagues society is agenda based politicking of events. And that is what Fred is doing here.

  11. LE

    Mark made a convincing argument that a founder would have the long-term interests of the company at heart, whereas the public investors would not. And so Mark has controlled 70% of the voting stock at ZyngaI guess I don’t understand enough about this to figure out why the control had to be vested in either a single person (the founder exclusively) or ‘the public investors’. Why couldn’t control be vested in several people to achieve near the same effect? What am I missing here?Sounds to me (once again I only know what I am reading) that Mark simply used his leverage because he could. Mark’s reason ‘long term interests’ is just a rationalization (accepted by investors) because he was a bigger gambler and stood his ground. And considering it’s a gaming company that makes perfect sense that would be his personality.

  12. Pointsandfigures

    Put Zynga aside. (I think what he did was right). One of the things about public markets is they are public. I disagree that public markets make teams point to short term b/c of quarterly reports and calls. Some shareholders are in it for the long haul and some scalp. You can’t know their motivation.Quarterly calls allow the team to set expectations. If the stock gets whacked in the short run it won’t matter if the team is executing and their vision plays in the long term.Heck, there are angel investments I made where we are lucky to get a yearly call. Quarterly seems pretty good-especially for public markets and the millions at stakePublic Shareholders rarely if ever tell an exec what Strategy to execute. The quarterly call with Tesla yesterday was interesting as is this blog on it: https://streetwiseprofessor

    1. JamesHRH

      See above, he couldn’t sell the super voting shares.PayDay PayDay.

  13. howardlindzon

    I agree…Like Sting says…if you love somebody…set them free….

    1. JamesHRH

      I am going to vomit.There is all kinds of downside to this status quo for him and you know it.Not saying it’s not an unusual move, but his interests lie elsewhere and he wants the market to ‘ Pay Dat Man His Monny’ as Teddy KGB would say.

  14. howardlindzon

    facebook stock would rise 10 percent if Zuck did that …it would bring trust back into the bigger picture. He seems too scared and insecure

    1. JamesHRH

      What? See @jlm post.He doesn’t need the money. He also can’t think of a CEO that would be better and has no interest in outside ventures.Come on Howie.

    2. JLM

      .Did you watch Zuck finger-in-the-eye-ing the Congress?He doesn’t care about the share price. He loves control.He has delivered gobs of shareholder value already, so WTF is 10%?He wants control and intends to control the world. He is going to use FB as a liberal bludgeon.More power to him, sayeth I. Love to see a plan come together. He could be the AA Anti-Christ.JLMwww.themusingsofthebigredca…

      1. LE

        Exactly. Why would he even care personally if the stock went up 10%? What does he gain? Not to mention that it’s ephemeral anyway. It can go down or up for other reasons. This is a guy who did the road show in a hoodie. This is someone who sets personal goals every year [1] to impress other millennials. He works out so he has a hard body and wears tight shirts as if he is cruising at the local Planet Fitness.To someone like Zuckerberg, sitting at the top of a service like Facebook, you worry about loss of power or loss of face more than anything. It’s about the loss not about the gain. You remember the horses head guy in The Godfather “Jack Woltz”? “And a man like me can’t afford to look stupid!”.…[1] Please explain that one since I don’t get it who do you need to prove or impress when you have a net worth of close to 70 billion dollars.

        1. sigmaalgebra

          Also he should diversify his assets, promote himself to COB, and find something else to do.But if all he really wants to do is to use Facebook as a way to tell the world what to think, then that’s what he DOES want to do. Ah, we need look no farther than the intrepid Inspector Clouseau: “Ah, the old take over the world ploy!”.But staying CEO, he can have his private jet, assuming he has one, paid for by the company, i.e., all the stockholders whereas if he resigned he’d have to pay for that himself!!

  15. JLM

    .Going out on a limb here, but I’m betting only the pure common trades publicly. (OK, maybe I did a little research.)Somebody is going to the …… paywindow.JLMwww.themusingsofthebigredca…

    1. JamesHRH

      You cynical yet incredibly wise bastard.@fredwilson is this accurate? If so, you should Delete the Tweet & Pull the Post ( feeling my Inner Johnie Cochrane today ).NoblesseOblige /= PayDayHow long is he locked up?

      1. JLM

        .From memory, so be skeptical: IPO $10, goes to $15. Now at $3.63. Been there for years.Three classes of stock.A = common, quotedB = pref, 7 votes/shC = Pincus pref 10 votes/sh, not quoted, convertible into A loses voting rightPaywindow.JLMwww.themusingsofthebigredca…

      2. jason wright

        is this worthy of an SEC probe? manipulation comes in many feels like a prelude to a blockchain startup announcement.

  16. Frank W. Miller

    With respect, I have to believe that any share structure that does not leave the VC in charge would be something you would oppose. What I’d really like to know is how did he get that control put into a Series A round. They must have been profitable or had significant revenue for him to win that battle…