Lock-Up Agreement

Why lockups exist

Before an IPO, insiders can own a large portion of the company.

If all of those shares became immediately saleable:

market supply could expand sharply.

Underwriters commonly negotiate lockups to delay that potential selling pressure.

Typical participants

Lockups can cover:

• founders
• directors
• executives
• employees
• venture-capital investors
• other large pre-IPO shareholders

The actual agreement controls.

Typical duration

Investor.gov notes that many IPO lockups prevent insider sales for 180 days.^[1]

That is a common convention, not a universal rule.

A company can use a shorter or longer period.

Expiration can matter

Suppose:

• public float after IPO: 20 million shares
• locked insider shares: 60 million

When the lockup expires, a much larger pool can become eligible for sale.

Not every insider will sell.

The increase in potential supply can still affect investor expectations.

Lockup expiration is not dilution

When locked shares become saleable:

shares outstanding usually do not increase.

Existing shares simply become eligible to trade.

That distinguishes lockup expiration from:

• stock issuance
• option exercise
• RSU settlement

Waivers

Underwriters can sometimes waive lockup restrictions for selected holders, depending on the agreement.

An early release can introduce supply before the scheduled expiration.

Prospectus disclosures and later filings should be checked.

Price reaction

A stock can fall before or after lockup expiration because investors anticipate selling.

It can also rise if:

• insiders do not sell
• demand remains strong
• fundamentals improve

The date is a supply event, not a deterministic trading signal.

Common mistakes

"Lockup expiration creates new shares."

No.

"Every insider sells immediately."

No.

"The lockup is always 180 days."

No.

"A lockup guarantees the stock price."

No.

Compare locked shares with public float and average trading volume. A lockup involving a small block may be irrelevant. A block several times larger than current float can materially change the stock’s supply profile even without formal dilution.