A source familiar with Snapchat's recent round of funding said that the teen sensation's two twenty-something cofounders, Evan Spiegel and Bobby Murphy, each received $10 million in secondary funding as individual shareholders. According to the source, that combined $20 million was on top of the $60 million Series B the company raised at an $800 million pre-money valuation.
It looks like TechCrunch, which reported an $80 million Series B over the weekend, updated their post from earlier today. It now also says, "the total raise was $80 million despite the SEC filing, with around $20 million sold in a secondary offering." Earlier this month, Om Malik, who broke news of the round, reported that it "includes some sort of a secondary component as well."
The secondary component to the snapchat funding is the important piece; cashing out early before the tweens move on is sensible.
"No one ever likes talking about secondary," the source warned Valleywag. Neither Snapchat nor Institutional Venture Partners, which led the round, responded to requests for confirmation. In its press release about the deal, IVP general partner Dennis Phelps listed "Because They Let Us" as one of the reasons for investing in Snapchat, which doesn't plan to monetize in the short-term.
A number of investors that we spoke to called these kind of secondary investments fairly common, even if $20 million was high and secondaries more typical of companies that have profits.
The idea is to incentivize founders to "go big." As one investor told Valleywag:
"Founders get 'rich' now, and de-risk some of the startup. Doesn't change alignment, just rewards them for their progress so far, and gives them life flexibility and security to focus on building bigger company"
All the investors we spoke with said the secondary was sign of high demand from investors. "It's not unusual given that they are likey not to have a liquidity event any time soon," said one, who added that the last time this happened in Los Angeles, where Snapchat is based, "it was with Beachmint (superfail) and Viddy (megafail)."