Lock-Up Period
Definition
A contractual restriction (typically 90-180 days) after an IPO during which insiders (employees, executives, and early investors) cannot sell their shares. The lock-up prevents a flood of insider selling that could crash the stock price. Lock-up periods are not legally required but are standard practice.
Real-World Example
Your company IPOs on April 1. The lock-up period is 180 days. You cannot sell any shares until October 1, regardless of what happens to the stock price in between. If the stock drops 50% during lock-up, you watch your paper gains evaporate without being able to sell.
Common Mistake
Not planning for the lock-up period financially. If you were counting on IPO proceeds for a major purchase, the 6-month lock-up delays your access. Also, the stock price at IPO is not guaranteed when the lock-up expires — plan for the possibility of a lower price.
Why It Matters
The lock-up period creates real risk: the stock price can move significantly during those months, and you cannot act. Understanding this helps you avoid counting on a specific equity value before you actually have the ability to sell.
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