Lockup Period
A contractual window after an IPO during which company insiders are barred from selling their shares.
A lockup period restricts founders, employees, and pre-IPO investors from selling shares for a set window after a company goes public — commonly 180 days in a traditional IPO. It exists to prevent a flood of insider selling immediately after listing, which would put heavy downward pressure on the stock price while the market is still establishing where it should trade.
When a lockup expires, a large number of previously restricted shares can become sellable at once, often causing a temporary dip in share price as insiders (some of whom have been waiting years for liquidity) sell a portion of their holdings — a pattern well-known enough that many public market investors watch lockup expiration dates closely.
Lockups are contractual agreements between the company, its insiders, and the underwriters — not a requirement of SEC rules — and their terms are disclosed in the IPO prospectus. Because they're contracts, structures vary: some deals release shares in stages, and some allow early release if the stock trades well above the IPO price.
The expiration date is public, which makes the coming supply predictable. Prices often weaken around expiry as the market prices in the newly sellable shares, and the effect tends to be larger when a big share of the company is locked up — which is typical of venture-backed companies, where most shares are held by founders, employees, and funds.
For employees, the lockup is a planning deadline. Tax strategy, diversification decisions, and any trading plans need to be set up well before expiry, not in the final week.
Hypothetically, a company goes public with 100M shares outstanding and sells 20M to the public, leaving 80M locked up for 180 days. On day 181, those 80M shares become eligible for sale — quadrupling the potential supply in a stock used to trading a fraction of that each day.
If you're an employee or founder near a lockup expiration, plan tax and diversification strategy well before the date arrives — waiting until the lockup lifts to start thinking about a sale plan often means reacting under time pressure right as a predictable wave of selling pressure hits the stock.
How long does a typical IPO lockup last?
180 days is the most common standard length, though some companies have negotiated shorter or staggered lockup structures that release shares in tranches rather than all at once.
Are IPO lockup periods required by law?
No. They're contractual agreements required by underwriters to protect the offering, and their terms are disclosed in the prospectus.
Do stocks always drop when the lockup expires?
Not always, but weakness around expiration is common because the market anticipates new supply. Strong fundamentals can absorb it; a weak outlook usually can't.
Who is covered by an IPO lockup?
Typically founders, executives, directors, employees with equity, and pre-IPO investors, sometimes extending to their affiliates. Investors who buy shares in the IPO itself aren't locked up.
Related terms
Run the numbers yourself: dilution, SAFE conversion, and fund-returner calculators.