More new-economy firms are following the big players that have succeeded in listing with dual-class share structure. It behooves Hong Kong to introduce weighted voting rights in order to lure more high-tech firms.
I spent nine years bringing my startup to list on Nasdaq. It’s not an easy journey. Hopefully, Hong Kong will allow weighted voting rights and drive a virtuous cycle of business success and local startup boom.
Startups badly need capital to support R&D and innovation. So they need new investors. However, these investors may not have the experience and expertise to run a new-economy company. They may not be able to lead these tech firms to the next level. As such, the founders play a critical role in setting the direction and planning the future of these firms.
New-economy giants such as Google, Facebook and Alibaba have listed in the United States for a reason. Apart from seeking market recognition and high valuation, these firms also want their dual-class share structure to be accepted.
The voting power attached to weighted voting rights shares is capped at not more than ten times the voting power of ordinary shares. Such a structure enables founders and senior managers to maintain control of the company and lead its development with less equity.
Many fund managers and institutional investors accept the dual-class share structure. They understand that company founders and management have better knowledge of the company and what strategies and policies to adopt for its continued development.
That’s critical for the firm to sustain growth. What will Facebook be like if without Mark Zuckerberg? Or Alibaba without Jack Ma?
On one hand, shareholders want to keep the founders in the company. On the other hand, the founding team can raise a large amount of capital without giving up their control of the company. That’s a win-win solution.
The Hong Kong Stock Exchange has launched a public consultation on the proposal to allow companies with weighted voting rights to list on the main board. Some say the four-week period for the consultation is too short. The truth is, the debate on the issue has been going on for the past four years.
And over the last four years, so many things have happened. Alibaba had a blockbuster initial public offering in New York. Singapore decided to accept firms with dual-class share structure, following the US and Britain. New-economy firms may not want to wait another four years.
In fact, we should focus on unicorns, or startups valued at US$1 billion or more. It’s estimated that there were 232 such firms at the end of last month, with a total market value of US$797 billion, according to data from CB Insights.
Among them, 62 are from China. Also, three of the five most-valuable tech unicorns are in China: DiDi, Xiaomi, and Meituan, with a market value of US$56 billion, US$46 billion and US$30 billion respectively.
By accepting firms with weighted voting rights structure, Hong Kong can be a strong contender in the battle to host their highly lucrative IPOs.
The full article appeared in the Hong Kong Economic Journal on March 21
Translation by Julie Zhu
[Chinese version 中文版]
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