Evan Spiegel's friends might just have made a killing on Snap's IPO

Friends of Snap executives might already have booked a 60% profit on an investment in the company’s shares thanks to its decision to set aside some of the stock in its IPO for them.

The company raised $US3.4 billion in an initial public offering this week, and its shares have popped 60% from the IPO price. The “friends” are among a select group of investors for whom Snap reserved some stock in advance of the sale.

The company said it was going to hold about 14 million shares, or about 7% of the stock, at the IPO price of $US17 for “certain institutions as well as individuals who are friends of our executive officers, which may include existing investors or their affiliates,” according to the company’s S-1 filing dated March 1.

The real gem for these folks is that, unlike Snap insiders and some other investors, the friends likely aren’t subject to a lockup that keeps them from selling the stock right away. Snap’s stock popped when it went public on Thursday morning. After opening at $US24 per share the shares have continued to rise – and are now 60% higher than the IPO price.

Of course, it’s not clear how many friends bought in, and in what size, and how their buys compare to those of “certain institutions” or existing investors that Snap might have sold the shares to instead. However, if this select group of investors opted to buy all 14 million of those shares at the $US17 per share price, and then sold them on Friday at $US27.20, they’d have made about $US143 million as a group.

It’s not unusual for companies to offer so-called friends and family deals, although they are less common than they once were.

Here’s the full language from the latest filing:

“At our request, the underwriters have reserved up to 14,000,000 shares of Class A common stock, or 7.0% of the shares offered by this prospectus, for sale at the initial public offering price to certain institutions as well as individuals who are friends of our executive officers, which may include existing investors or their affiliates. None of our employees or members of our board of directors will participate in this directed share program. Any reserved shares of our Class A common stock that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of our Class A common stock offered by this prospectus. We have agreed to indemnify the underwriters against certain liabilities and expenses, including liabilities under the Securities Act, in connection with sales of the reserved shares. Participants in this directed share program will not be subject to the lock-up restriction with the underwriters with respect to any shares purchased through the directed share program. We expect some participants in this directed share program to enter into a separate lock-up agreement with us providing for a restricted period of one year following the date of this prospectus. We may, in our sole discretion, waive any of these lock-up agreements before the restricted period expires.”

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