Lockup Period

A lockup period is the 90 to 180 day window after an IPO during which insiders are contractually barred from selling or transferring their shares. Also called an IPO lockup, the restriction binds founders, employees, pre-IPO investors, and certain other affiliated parties, including from hedging their shares. It is designed to prevent a post-IPO supply shock that would tank the newly-public stock and to give the market time to absorb the float available from the offering itself. It is one of the most important structural features of a traditional IPO and one of the things direct listings deliberately abandon.

The standard structure: the underwriters require all insiders to sign lockup agreements as a condition of the IPO, with terms typically running 180 days post-listing (the long-time market standard), sometimes shortened to 90 days for higher-quality offerings or extended to 270 to 365 days in specific cases. The agreements bind founders, executive officers, board members, employees with vested holdings, and pre-IPO investors who held shares prior to the offering. Lockup expiration creates real market dynamics: the supply of available shares can multiple by 5 to 10x or more overnight, and stocks often see meaningful price pressure in the weeks leading up to and following expiration as insiders prepare to sell and execute trades. Notable examples: Facebook's 2012 IPO had a complex staggered lockup that released different tranches at 90, 150, 180, and 365 days, contributing to extended volatility post-IPO. Many 2020 to 2021 IPOs saw significant stock-price declines around 180-day lockup expiration as insiders rushed to sell into a peaking market. The 2018 to 2021 introduction of early-release provisions: some companies negotiated structured early releases tied to stock price performance, allowing partial insider selling before formal expiration if certain price thresholds were met. Direct listings explicitly abandon the lockup structure (no underwriters, no lockup agreements), which is part of why direct-listed stocks can see more volatile early trading.

What founders get wrong: Treating the lockup expiration date as a deadline rather than a window. Selling everything available on day 1 of post-lockup eligibility is rarely optimal: it concentrates tax events, signals lack of confidence to the market, and often hits the worst price as other insiders are also selling. The smarter approach is a structured 10b5-1 plan that sells gradually over months following expiration.

Related: IPO · Direct Listing · Secondary Sale · Exit Strategy

FAQ

What is an IPO lockup period?
The 90 to 180 day window after an initial public offering during which company insiders (founders, employees, pre-IPO investors) are contractually barred from selling, transferring, or hedging their shares. Designed to prevent a post-IPO supply shock that would tank the newly-public stock.

How long is a typical IPO lockup?
180 days is the long-time market standard, sometimes shortened to 90 days for higher-quality offerings or extended to 270 to 365 days in specific cases. Some 2018-2021 IPOs introduced staggered lockups (Facebook 2012, for example, released tranches at 90, 150, 180, and 365 days) or early-release provisions tied to stock price.

What happens when the lockup expires?
The supply of available shares can multiply by 5 to 10x or more overnight as insider stock becomes sellable. Stocks often see meaningful price pressure in the weeks leading up to and following expiration as insiders prepare to sell. Smart founders use 10b5-1 plans to sell gradually over months rather than dumping on day one.