Concept
Lock-up is a contractual prohibition on selling shares for a specified period after an IPO. It is signed by insiders (founders, early investors, employees with options ESOP and RSU) and underwriters of the offering. The logic is simple: prevent all holders from exiting on the first day and crashing the newly established price.
By its nature, lock-up is a private contract. The terms live in the underwriting agreement and lock-up letters that major shareholders sign before the offering. The duration, set of exceptions, and right to early release are determined by the agreement with the lead banks; the law does not intervene in this structure, and there is simply no mandatory public rule to "hold for N days."
Duration and Mechanics
The standard term in the US is 180 days, less commonly 90. Some offerings use staggered release: shares are freed in stages (say, 25% after 90 days, the rest after 180) or upon reaching price thresholds. The underwriter has the right to lift the lock-up early—this is their discretion, not the shareholder's right.
Lock-up expiration is an independent price event. When the overhang of previously locked shares enters the market, the stock often drops, and institutional investors factor "lock-up expiry" into their models in advance. A new issuer has two key dates on the calendar—IPO day and lock-up release day roughly six months later—and the market watches the second almost as closely as the first.
Lock-up Before IPO
Restrictions on selling exist in private companies too—they're just called something else. Transfer restrictions in the charter, ROFR (right of first refusal), and board consent in practice work as a perpetual lock-up: you cannot sell a stake before IPO without company approval. After going public, one set of restrictions (corporate) is replaced by another (lock-up with the underwriter), and the pause for the holder continues.
Early Release and Price Triggers
The rigid 180 days are gradually giving way to flexible structures. In recent years' tech IPOs, underwriters increasingly embed early release mechanics in the agreement: some shares are freed if the stock confidently holds above a threshold. A typical formula—VWAP not below 120–133% of the offering price over 20 of any 30 trading days; when triggered, the first tranche enters the market, and the remaining volume waits for its mark.
Release is often done in tiers: for example, one-third of the volume at several price levels relative to the offering price, so insider shares enter the free float in portions. A separate motive for early release is to give employees liquidity sooner and avoid a situation where day 180 falls during a trading blackout around quarterly earnings, and the selling window closes on its own.
The very agreement to release insiders ahead of schedule is read by the market as a signal: the organizer is confident in demand for the stock. The flip side is a noticeable spike in supply on a specific day, so analysts keep partial release dates on the calendar alongside lock-up expiration itself and factor them into volatility expectations.
Exceptions to the Ban
Lock-up usually does not impose a complete ban on any share movement—the agreement leaves a set of permitted transactions. Typical exceptions: gifts and transfers to trusts for estate planning, charitable donations, sales under a pre-arranged 10b5-1 plan, and any transactions with written consent from the underwriter. All carve-outs have one common condition: the recipient of shares assumes the same restrictions until the end of the term, otherwise the ban would be easily circumvented through a chain of transfers.
Direct Listing, SPAC, and Rule 144
Classic lock-up does not accompany every public market debut. In a direct listing, no new shares are issued and there is no underwriter in the traditional role, so insiders can sell from day one. This is how Spotify went public in 2018 and Coinbase in 2021; hence the wide spread in quotes in the first sessions, when supply is unconstrained.
SPACs have their own logic: sponsor shares (founder shares) are usually locked longer—typically up to a year after the de-SPAC transaction closes or until price thresholds are reached. On top of the contractual ban, a regulatory layer applies—SEC Rule 144, which governs the resale of restricted securities from private transactions: the holding period is six months for reporting issuers and one year for others, and affiliated shareholders are limited in sales volume and must file Form 144 even after lock-up is lifted.
Restrictions stack in layers, and each is lifted on its own schedule: contractual lock-up—by term or price trigger, Rule 144—by holding period and shareholder status. Therefore, on the secondary market, the actually available-for-sale stake is always calculated by the latest of the applicable restrictions.
Why This Matters to Investors
Lock-up sets the real liquidity horizon. Having bought a stake in a pre-IPO company, an investor expects to exit "at IPO"—but between listing and the actual ability to sell lies another 90–180 days, and when owning through an SPV, the term stretches at the operator's discretion. This delay must be factored into returns: annualized figures in presentations are calculated from the entry date, not from the date when the position can actually be closed.
You cannot circumvent lock-up "head-on," but you can structurally hedge it. Variable prepaid forward, collar, and stock-secured loans allow you to monetize a position before the ban is lifted; such transactions require separate approval and are not always available to holders through an SPV.
This material is for informational purposes only and does not constitute investment, tax, or legal advice.