VCs in Fitbit Paid a Price for Not Selling Early

Source: SEC Filings. Graphic by Mike Sullivan

For early investors in Snap, the next few months are likely to be tense. While the stock has traded as much as $11 above its $17 IPO price since it opened last Thursday, there’s no guarantee it’ll be trading that high when the investors are free to sell their shares in early August. For the early investors, the worst-case scenario would be that the stock collapses before they unload most of their shares—as happened with another recent tech IPO, Fitbit.

Shares of the fitness band company soared 150% after its mid-2015 IPO but plunged to well below its IPO price a few weeks after the expiration of “lockup” restrictions on selling by early investors. But venture capitalists holding big stakes, such as True Ventures, SoftTech and Foundry Group, held on to much of their stock long after they were free to sell. That meant they didn’t get anywhere near as much for their stock as they could have. (See above chart. Put your cursor over the dots to see how funds' stock ownership dropped.)

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But Mr. Lee said it’s the usual practice to stagger sales of stock, so as not to dump it onto the public markets all at once, which could impact the stock price. “We think the best practice is to do it in a measured and reasonable way,” he said, and give limited partners visibility into the process.

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