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Private Tech Governance: Best and Worst

The Information examined the practices of 30 prominent venture-backed private tech companies and found that many failed to disclose basic information, let founders exercise outsize control and had little independence or diversity on their boards. See our rankings below, from worst to best, and examine the details behind the scores. Read the related story and an op-ed on the issue. Learn more about our methodology.


How We Calculated the Corporate Governance Rankings

By Alfred Lee

To calculate the corporate governance ratings, we evaluated 30 private U.S. venture-backed companies on three categories: board composition, shareholder rights and disclosure practices. For each category, companies received a percentile score that reflected its standing compared with the other companies we evaluated. The percentile score was converted into a number on a scale of 1 to 10.

Board Composition

We rewarded large, diverse boards with more independent directors. A company’s total number of directors, percentage of independent directors, percentage of female directors and percentage of minority directors each was factored into the board composition score. Each company received a percentile ranking for each subcategory, which combined to produce a category score. The total number of directors and the percentage of independent directors each weighed a third. The percentage of women and the percentage of minority directors each was weighted a sixth.

Shareholder Rights

We awarded higher shareholder rights scores to companies where founders don’t have outsize control of votes or board seats. We tallied whether companies had equal voting rights for all shareholders, and the ratio of board seats elected by preferred stock to board seats elected by common stock, as outlined in company charters. Companies with one share, one vote were rewarded. A few companies that have very small amounts of stock with different voting rights didn’t see their scores affected. More seats elected by preferred stock compared with common stock reflects weaker founder control of the board, and so received a higher score. The total number of board seats exclusively elected by common or preferred shareholders may differ than the total number of board members, because seats go unfilled or because additional directors may be elected by all shareholders voting together. For companies where founders have the power to cast extra board votes, each founder vote was counted as a seat, weakening its score. Percentile rankings for the two subcategories were combined and weighed equally.

Disclosure Practices

To measure disclosure practices, we tracked companies’ federal Form D filings, share price disclosures, state filings and whether board members were disclosed on company websites. Companies were judged to have timely Form D filings if they had filed their most recent financing rounds with regulators, and to have disclosed share prices if the price of each financing round was stated in their charters or available on PitchBook, which collects share price data from charters. Companies were judged to have timely state filings if their annual reports were up to date in their headquarters state, and for companies doing business in California, if they had filed with the California Department of Business Oversight in the last 18 months. We also rewarded companies that listed directors on their websites. We tallied how many of the four disclosures were made by each company, and then ranked the companies on a percentile basis to produce a category score.

Overall Score

To produce an overall score, we added up a company’s percentile rankings for each category, and weighted the rankings as follows: Board composition weighed 50%, shareholder rights weighed 25% and disclosure practices weighed 25%. The final score then was placed on a scale of 1 to 10, in which 10 was the maximum score.