What it means
In an initial public offering, founders, employees and pre-IPO investors typically agree to a lockup of 90 to 180 days from the listing date. Without it, insiders holding the vast majority of shares could sell into a thin market in the first week and collapse the price, which would make the offering impossible to underwrite.
Underwriters therefore insist on the restriction as a condition of taking the company public. Investment funds use the concept differently.
A hedge fund may impose a one-year or two-year lockup on new money so the manager can hold illiquid positions without fearing redemptions, and private equity funds effectively lock capital for the fund's whole life. The trade-off is transparent: investors give up access to their money in exchange for a strategy that would not work with daily withdrawals.
Lockup expiry is a scheduled, publicly known event, which makes it one of the few genuinely predictable pressure points in a share price. Traders watch expiry dates because the supply of shares available to sell jumps overnight, and prices often soften in the days before as the market positions for it.
Not every insider sells, but the possibility is enough to move the price. There are variations worth knowing.
Staggered lockups release shares in tranches, price-conditional lockups end early if the shares trade above a threshold, and companies sometimes waive the restriction to allow a secondary offering. Soft lockups in funds permit withdrawals but charge a redemption fee, often 2% to 5%, that goes back into the fund for the benefit of remaining investors.
In practice
Real-world examples.
Example
A payments company lists in April with a 180 day lockup covering roughly 85% of its shares. In the fortnight before expiry the share price falls 9% as institutions anticipate insider selling, then recovers once actual volumes prove modest.
Example
A hedge fund with a two-year hard lockup rides out a sharp market drawdown without selling a single position. A rival fund offering monthly liquidity is forced to sell into the same falling market to meet redemptions.
Example
An engineer joins a start-up and is told his shares will vest over four years. He is separately warned that even fully vested shares will be locked for six months after any future listing, so he plans his house purchase around that timetable rather than the vesting schedule.
Think of it
“Lockup period is when insiders can't sell after IPO-temporary selling restriction.
Formula
Calculation
Value of locked shares at expiry = number of locked shares x share price on the expiry date
An operations lead holds 200,000 shares in a company that lists on 10 March 2026 at an offer price of $24, with a 180 day lockup. At the offer price her holding is notionally worth 200,000 x $24 = $4,800,000, but she cannot sell any of it.
Counting 180 days forward from 10 March 2026 gives an expiry date of 6 September 2026. By that date the shares have drifted down to $18, so the holding is worth 200,000 x $18 = $3,600,000.
The difference is $4,800,000 - $3,600,000 = $1,200,000 of value she could not act on, a 25% decline she had no ability to avoid. This is precisely why employees are advised to plan their post-lockup selling in advance and to treat pre-lockup paper wealth as provisional.Case study
Seen in the real world.
This fictional case is provided purely as an illustration. Norvale Robotics, an invented manufacturer, listed at $32 per share with a 180 day lockup and rose to $47 within eight weeks on thin trading volume.
Its finance director, holding 90,000 shares, watched the paper value of her stake reach $4,230,000 and committed to a property purchase on the strength of it. As expiry approached, the market anticipated that a large block of insider shares would become sellable, and the price slid to $29 by the release date, valuing her holding at $2,610,000.
The illustrative moral is not that lockups destroy value. It is that a price set by a small free float is not a price at which a large holder can actually sell, and prudent insiders model the expiry date, not the peak, when making financial commitments.
Watch out
Common mistakes.
- Treating the pre-expiry share price as money in the bank. A restricted holding cannot be sold, and the price at expiry is the only one that matters to you.
- Assuming lockups apply only to IPOs. Hedge funds, private funds and many private placements use lockups on invested capital as standard practice.
- Believing a lockup guarantees the price will fall at expiry. Prices sometimes rise, particularly when insiders publicly commit to holding.
Questions
People also ask.
How long is a typical IPO lockup?
Ninety to 180 days is the common range, with 180 days the most frequent choice.
Can a lockup be ended early?
Yes, underwriters can waive it, and some agreements release shares early if a price threshold is met for a set number of trading days.
What is a soft lockup in a fund?
It allows redemption before the period ends but applies a fee, commonly 2% to 5%, which is usually paid into the fund rather than to the manager.
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