CoreWeave's (CRWV) IPO and Creeping Corporate Autocracy
Some things matter more than a SWOT analysis
I swear, I intended to write an analysis of CoreWeave’s (NASDAQ: CRWV) IPO. It is likely to be the biggest IPO in 2025, and thanks to its close customer ties with nearly everyone involved in artificial intelligence, it has been featured in many headlines.
I was genuinely curious how a capital-intensive business like owning and operating data centers could grow quickly. I wonder if CoreWeave’s integrated offering (physical infrastructure and compute services) is unique or replicable. There are legitimate opportunities and reasons to question CoreWeave’s future.
Unfortunately, I didn’t get that far.
One section of the prospectus made my blood boil to the point I could no longer objectively analyze this company.
CoreWeave is another example of the creep toward corporate autocracy in publicly traded companies. Corporate leaders want to have their cake (money from the public markets) and eat it too (not cede one ounce of voting control).
Excuse me for a moment while I get up on my soapbox.
I could do a months-long study into CoreWeave’s business and financials. No matter how much I like the strategy, the financials, or the valuation; one element will always bother me about this business.
The utter contempt with which it views its minority shareholders.
I’m not basing this claim on something its co-founders have said. I’m simply parsing it from the terms it offers the public in this IPO.
Like several other IPOs these days, CoreWeave has a dual-class share structure where its three co-founders are granted supermajority voting (79% of voting control). At the same time, their economic interest in the business is less than 25%. In addition to the second-class status of its publicly traded stock, the company also holds a significant amount of a third share class (Class C). These Class C shares are convertible preferred shares that CoreWeave can use to chase big money partners (think SoftBank) and give them a claim higher up the capital stack than us lowly common stock investors.
Perhaps we live in a cynical world where no one cares about how minority investors are treated anymore. All that matters is the line going up and to the right.
As someone who wants to buy portions of businesses, I find these terms and corporate behavior revolting. This feeling is doubly true for companies such as CoreWeave, which will require billions upon billions in new capital from the investing bourgeoisie before reaching exit velocity.
Minority investors such as you and I may not be able to write big checks, but we are partners in this business nonetheless. A management and board that thinks it can routinely tap the capital markets for the next decade while offering practically zero say over the company's direction is insulting.
I’m fully aware of the counterargument. These “visionary” founders don’t want “short-term thinking” from activists and disgruntled investors who could stage a proxy fight or do something else to impede their long-term vision. You know, the important things, like Facebook Metaverse!
Frankly, I don’t buy that argument. CoreWeave’s founders have a 25% economic interest, and its principal venture-capital backers have another 50% economic interest. It would take years for these players to sell down their respective stakes enough for an activist investor to drum up enough support to stage a legitimate proxy fight.
A management team with that much economic control but still thirsting for greater voting control is using the activist investor Baba Yega to force minority investors to accept management’s table scraps instead of a seat at the table.
This isn’t just a CoreWeave issue. More and more companies are invoking primae noctis-type voting laws that prevent us, proletariat investors, from causing a ruckus. This autocratic corporate structure is pervasive among Silicon Valley companies that get several rounds of venture capital-backed funding. After hob-nobbing with the Andreseen-Horowitzes of the world for decades, the idea that you and I would be equal partners with them is beyond the pale.
Perhaps I’m taking too much insult where others take no offense, but decisions like this tell you what management thinks of us. We are merely a supply of capital to them, and we should be thankful that these founders came into our lives. Instead of treating them as our employees, they should be revered as our messiahs. Management teams and boards of directors who refuse to see their minority investors as equal partners are far more likely to make future moves that benefit them, but ultimately hurt the common investor.
I will probably miss out on several stocks that generate incredible returns because I loathe corporate structures like this. I’m fine with that. Hundreds of market-beating companies out there don’t require me to suspend my rights as a partial owner of a company’s capital.
I can hear the “BuT wHaT AbOuT BeRkShIrE” voices screaming at me. I don’t like Berkshire Hathaway’s dual-class shares, either. I would much rather see Berkshire have a single share class split in a way that investors don’t need $800,000 to own a single share. I’m willing to tolerate it because 1) A shares have a greater economic interest alongside more voting power, and 2) decades of managerial stewardship for both share classes.
Benjamin Graham gave up on proselytizing the need for investors to hold management teams to account. What was once a prominent component of The Intelligent Investor was whittled down to wonky thoughts on dividend policy.
Investors don’t care about corporate governance until things go spectacularly wrong. It takes spectacular failures like Enron to get anyone to pay attention, and even then, the protections we build through law to prevent such disastrous outcomes erode over time (and changes to the Delaware Chancery Court).
As Graham put it, we all need to act as our own fiduciaries. Overlooking CoreWeave’s sickening corporate structure would, in my opinion, be a breach of that fiduciary duty. If they won’t accept our shareholder votes, we need to vote with our brokerage statements.