IPO lockups

A lockup is a contract that stops insiders — employees, founders, funds — from selling for a stretch after the IPO. The usual period is 180 days, sometimes with an early-release if price or volume tests are met. The point is to keep a flood of supply from hitting the tape on day one.

Paper gains at the offering price are not cash. Liquidity waits for lockup expiry and an open trading window.

The big idea

Imagine a dam holding back a reservoir of shares. On IPO day the dam stays shut. About six months later it opens a bit, and the market often weakens into that date because traders expect extra supply. That pattern is common, not a law of nature.

The analogy breaks on early-release clauses and company-specific calendars. Some lockups crack open sooner if the stock holds a price. Some never feel like a single event because 10b5-1 plans dribble stock out.

This is why late-stage tender offers matter. If you cannot wait 180 days plus windows after listing, you needed liquidity before the IPO.

Walking through an employee timeline

You hold vested options and watch the traditional IPO price at $40, then open at $56.

Day 0     IPO prices and trades. You cannot sell.
Day 1–180 Lockup holds. Tax clocks on RSUs and option exercises still run.
Day ~180  Lockup expires. Float rises. Price often dips into the event.
After     You still need an open window or a 10b5-1 plan to sell.

Tax planning around RSU vesting and option exercise gets tangled with that calendar. A vest that lands inside the lockup can create a tax bill with no sale to fund it. After listing, equity starts to look like big-tech RSUs: windows, blackouts, 10b5-1.

Know your lockup end date and whether early release applies. Separate headline market cap from your vested, unlocked, saleable shares.

Common mistakes

• Treating IPO day as payday. You generally cannot sell, and you did not get the offering-price allocation.
• Ignoring the tax calendar. A vest or exercise during lockup can create cash due with no shares you can sell.
• Assuming lockup expiry is a free-for-all. Insider policies and 10b5-1 still govern how you sell.

Check yourself

The stock doubles on day one. Can you sell your vested shares that afternoon?

Almost never. Lockup usually blocks insider sales for about 180 days.

Why do prices often weaken into lockup expiry?

The market anticipates a jump in supply when insiders become free to sell.

Key takeaways

• Lockups commonly last 180 days so insiders cannot dump on day one.
• IPO day is not cash. Plan around lockup plus trading windows.
• Late-stage tenders exist because this wait is long.
• After expiry, 10b5-1 and windows still control how you sell.

Further learning

Next: how preferred converts at IPO, then the IPO map.