How Snap’s IPO Lockup Hurts Employees

About five months after Snap goes public early in March, it will cross an important milestone as a public company. At that time, co-founders Evan Spiegel and Bobby Murphy as well as other pre-IPO investors will be free to cash out and sell stock on the public markets, according to the IPO filing. But employees will have to wait another month before they can sell any of their shares.

UPDATE: Snap offered new agreements to employees allowing them to sell at the same time as co-founders and other pre-IPO investors. For more details, see this story.

It’s typical for early shareholders to have to wait months after an IPO before being able to sell their shares, known as a “lockup” restriction. But it is rare for most investors to be allowed to sell before employees, said Dan Walter, president of compensation consulting firm Performensation. The delay could cost employees, as any earlier selling by longtime shareholders may well have sent the stock falling.

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For example, unlike Square, Snap did not promise to grant more shares to investors in certain IPO scenarios, which can dilute the value of shares owned by employees and founders. But employees will still be diluted by the bonus given to Mr. Spiegel for taking the company public, which will be equivalent to 3% of the company’s outstanding shares.

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Evan Spiegel
Evan Spiegel
CEO, Snapchat
Chamath Palihapitiya
Chamath Palihapitiya
Founder & Managing Partner, SocialCapital
Marc Andreessen
Marc Andreessen
Co-Founder, Andreessen Horowitz
Jonah Peretti
Jonah Peretti
CEO, Buzzfeed
Adam D'Angelo
Adam D'Angelo
CEO, Quora
Brit Morin
Brit Morin
Founder & CEO, Brit + CO
Dustin Moskovitz
Dustin Moskovitz
Co-Founder, Asana
Christina Miller
Christina Miller
President & General Manager, Turner
Max Levchin
Max Levchin
CEO, Affirm
Adam Mosseri
Adam Mosseri
Director of Product, Facebook
Alex Mather
Alex Mather
The Atheltic
Martha Josephson
Martha Josephson
Partner, Egon Zehnder
James Murdoch
James Murdoch
Co-Chief Operating Officer, 21st Century Fox
Andrew Kortina
Andrew Kortina
Founder, Venmo
Ben Chestnut
Ben Chestnut
Co-Founder & CEO, Mailchimp
Ruchi Sanghvi
Ruchi Sanghvi
VP Operations, Dropbox
The concept is not to make you think and act like an owner—you don’t get the rights and privileges owners would normally get.