TLDR:
A lock-up agreement is a contractual commitment by insiders—founders, executives, employees, pre-IPO investors—to refrain from selling their shares for a specified period following an IPO, typically 180 days. Lock-ups protect newly-public companies from immediate insider selling pressure that could destabilize trading prices and harm public investors. They are essentially universal in US IPOs and equivalent constraints exist in most major markets.
Standard Lock-Up Terms
Typical lock-up provisions include: 180-day restriction period from IPO pricing date, applicable to all officers, directors, employees with significant equity, and pre-IPO investors holding meaningful positions, with limited exceptions for: bona fide gifts, certain estate planning transfers, exercises of options that comply with company policies, and shares acquired in the IPO open market. The lock-up is administered by transfer agent restrictions, broker holds, and contractual covenants. Some recent IPOs have included “lock-up release triggers” allowing early release if specific stock price thresholds are sustained.
Lock-Up Variations
Modern variations include: staggered lock-ups (different release dates for different categories of insiders), price-based release triggers (Spotify, Slack used these), longer lock-ups for control persons (12-18 months for founders in some deals), and lock-up exceptions for charitable donations and certain trust transfers. Direct listings (Spotify 2018, Slack 2019, Roblox 2021) typically don’t include traditional lock-ups, allowing insider liquidity from day one—a feature some institutional investors prefer for cleaner price discovery.
Practical and Strategic Considerations
Lock-up expiration is a closely-watched event: stock prices often decline modestly as insider selling becomes possible (the “lock-up expiry effect”). Sophisticated insiders typically have planned exits: 10b5-1 trading plans implemented before lock-up expiry, structured selling programs, and coordination with research analysts on disclosure timing. For founders and key employees, lock-up release represents a critical wealth-management moment—diversification of concentrated equity holdings is often initiated. Pre-IPO planning around lock-up release (estate planning, diversification strategies, tax positioning) is essential. Turkish IPOs under SPK rules typically have 1-2 year mandatory holding periods for founders/significant shareholders, often longer than US 180-day lock-ups.