A company's stock that is offered to preferred individuals, prior to its initial public offering (IPO). Issuers and bankers may offer "friends and family shares" to business associates, family members or friends, prior to the stock's launch to the public, allowing them a stake in the future success of the company. These shares may represent a small percentage of an offering, typically less than 5%, but can create significant gains for the holder.
Also called directed shares.
The lead underwriter for the IPO typically agrees to administer the friends and family shares as a service to the issuer. In the U.S., the Securities and Exchange Commission (SEC) has paid close attention to the effects of friends and family shares. Some of these shares are "flipped" during the IPO, creating large profits for the friends and family shares holders.
Investment dictionary. Academic. 2012.