Securities & Exchange Commission filings are tricky things. Ostensibly they are meant to raise the kimono on what’s going on inside a company. They have their own language and rules. If you don’t read these all the time, sometimes they can confuse more than elucidate.
This is a bit what happened yesterday with a lot of the coverage around Twitter’s S1 and who owns what of the company.
It wasn’t until this morning that I was catching up on the news, and I was confused at some reports that Benchmark’s Peter Fenton owned more shares than Jack Dorsey, and that Benchmark — who invested in Twitter’s C round — seemed to own more than Spark or Union Square Ventures.
Those reports didn’t sound right, because they weren’t. And a lot of that has to do with the quirks of SEC filings, and CEO Dick Costolo’s rejiggering of the Twitter board back in 2011. It’s interesting to point out, because increasingly entrepreneurs and executives are controlling more shares and board seats, thanks to the lower costs of building companies. That means significant shareholders don’t always have board seats, which means their exact ownership isn’t always disclosed in S1s.
First off, Peter Fenton’s shares are Benchmark’s shares. He’s the agent or “beneficial shareholder” for them because he’s the partner who is on the board and bites on behalf of that share block. Co-founders Evan Williams and Jack Dorsey are still the largest individual shareholders. That’s the way it should be, if you ask most founders. Absent in the document is any mention of third co-founder Biz Stone’s ownership, which would suggest that he owns less than 5 percent today.
More interesting is the breakdown of how much of Twitter the venture firms own. The only one disclosed is Benchmark, because Twitter is only required to disclose how much board members own and Fenton is the only VC on Twitter’s board. Why? Because Costolo rejiggered the board back in 2011, partially to control widespread leaks.
Twitter’s other investors — including two of its earliest ones Spark and Union Square Ventures — are listed under beneficial owners that have more than 5 percent, in accordance with SEC rules. But the implication is that they only own 5 percent. That’s not true, but you can see how the mistake was made in some of the coverage.
This section of the S1 is misleading, because it doesn’t specify that these groups have at least 5 percent ownership:
I haven’t been able to find out the exact amount, but I’ve had it confirmed from people close to the situation that Spark and Union Square are essentially tied as the third largest holders of Twitter shares, and the second largest institution — materially ahead of Benchmark. That isn’t surprising, since they invested earlier. My best guess is that it’s less than 10 percent but north of 7 percent. I’ll update if I get the exact number.
The second largest holder after Evan Williams — and largest institution — is Rizvi Traverse, the group that was buying secondary shares of Twitter from early employees and investors, brokered by Chris Sacca. It’s also merely listed as a 5 percent-er, because it doesn’t have a board seat.
Interestingly, that group’s ownership got that large in part because they bought hundreds of millions of dollars worth of shares from Union Square and Spark. And as we already reported, that sale was the “carrot” that gave Costolo the negotiating position to change the board’s make up.
Point is: We all knew that Union Square and Spark did well off Twitter, but the S1 didn’t actually clear up how well.