Cloudflare IPO Filing Cites 8chan as Risk

Cloudflare, a firm that helps websites protect and distribute content, warned potential investors in its initial public offering that risks to its business go beyond the boilerplate Silicon Valley advisory that it may never become profitable.

The San Francisco-based company said in its IPO filing Thursday that the risks include negative publicity from the use of its network by 8chan, a website favored by white supremacists and used by gunmen before mass shootings in El Paso, Texas and Christchurch, New Zealand, this year. It also cited the use of its services by neo-Nazi website The Daily Stormer around the time of the 2017 protests in Charlottesville, Virginia.

Activities of such groups have had “significant adverse political, business, and reputational consequences” for the company, Cloudflare said in the filing. Terminating those accounts, though, has raised censorship concerns, it said.

“We received significant adverse feedback for these decisions from those concerned about our ability to pass judgment on our customers and the users of our platform, or to censor them by limiting their access to our products, and we are aware of potential customers who decided not to subscribe to our products because of this,” according to the filing.

Cloudflare co-founder and Chief Executive Officer Matthew Prince has publicly struggled with decisions balancing freedom of speech on the internet with the need to limit hateful, racist online posts and potentially dangerous calls for violence.

Risky precedent

After deciding to cut services to The Daily Stormer, Prince said the move could set a dangerous precedent.

“After today, make no mistake, it will be a little bit harder for us to argue against a government somewhere pressuring us into taking down a site they don’t like,” Prince wrote.

In its filing with the U.S. Securities and Exchange Commission, the company listed the amount of its offering as $100 million, a placeholder that will change when terms of the share sale are set later.

Customers, losses

Cloudflare said about 10% of Fortune 1,000 companies are paying customers. Its security services blocked an average of 44 billion cyber threats a day during the second quarter, it said.

For the first six months of the year, Cloudflare lost $37 million on revenue of $129 million, compared with a loss of $32 million on revenue of $87 million for the same period last year, it said in its filing.

Prince currently controls 16.6% of Cloudflare’s shares, according to the filing. It’s largest investor is the venture capital firm New Enterprise Associates, with a 20.4% stake, followed by Pelion Ventures with a 18.8% share and Venrock Associates with 16.2%.

After going public, the company will have a dual-class stock structure that will give its Class B stockholders 10 votes per share, according to the filing.

The offering is being led by Goldman Sachs Group, Morgan Stanley and JPMorgan Chase. Cloudflare is applying to list the shares on the New York Stock Exchange under the symbol NET.