What is a lock-up period?
A lock-up period is a time period after an IPO (or other event) where existing shareholders are not allowed to sell their shares.
Why do they exist?
- Stabilize the stock price — Prevent insiders from dumping shares and driving the price down.
- Show confidence — Signals that founders and early investors believe in the company.
- Regulatory requirements — Market venues may require it.
Typical length
- Usually 90-180 days after IPO.
- Can vary depending on agreements and market venue.
- Sometimes with staggered release (e.g., 25% after 90 days, rest after 180).
What happens when lock-up expires?
When the lock-up period ends, many shareholders can sell simultaneously, which can lead to temporary price drops — the so-called "lock-up expiry" effect.
Summary
Lock-up periods temporarily limit your liquidity but serve an important purpose. Plan your exit strategy with lock-up in mind.