IPO Lockup Period: What Changes on the Day Insiders Can Sell

An IPO lockup period is the one date in a new share's life that everybody can see coming and almost nobody looks up. It decides when the people who already owned the company are allowed to start selling, and that single fact changes how many shares exist for sale without changing anything about the business.

The Agreement, and Who Signs It

Before a listing, the company's insiders and its underwriter sign an agreement that keeps employees, founders, friends, family and large holders from selling. The SEC's own glossary explains that terms differ while the usual restriction lasts 180 days, that a lockup can also cap how much gets sold in a given stretch, and that United States securities law obliges the company to spell the terms out in its registration documents.

Nothing in that is statute. The six-month convention is a bargain struck between a company and its bank, which is why the variations matter more than the default. Shorter terms exist. Staged terms exist. So do clauses that unlock shares early if the price behaves.

Why Supply Decides the Reaction

Only a slice of a newly listed company actually trades. That slice is the free float, and while the lockup holds, the float is doing all the price discovery for a company whose owners are mostly standing still. When the restriction lifts, how much stock could legally change hands may multiply several times over inside a day.

More stock available does not mean more stock sold. Founders commonly hold on for a long time. Staff who have spent half a year watching a paper fortune often do sell a slice, for tax bills and for ordinary life, and a buyer base sized for the old float has to take in whatever turns up.

Because the date is public, a second layer sits on top. Some holders act ahead of it, some wait for the dust. The move you observe on the day mixes anticipated selling with genuine surprise, and separating the two after the fact is close to impossible.

What a Study of 172 Expirations Found

The clearest evidence with a stated sample is older than most readers expect. Eric Nowak examined 172 lockup expirations across 142 companies listed on Germany's Neuer Markt and reported significant negative abnormal returns plus roughly a twenty-five per cent rise in trading volume around the expiry. The paper dates from 2004, and it covers a German growth market in the aftermath of the dot-com boom, so treat it as structural evidence rather than a current measurement. It is cited here because it states its sample and its conditions, which a good deal of newer commentary does not.

The conditioning is the useful part. Nowak reports the negative reaction running larger where volatility was high, where the shares had performed strongly since listing, where the float was small, and where venture capital backed the company, in the same study. Those four features describe a great many recent technology listings, which is the honest reason the pattern keeps coming up.

The Two-Day Notice Nobody Mentions

Here is a practical point the explainers skip. An early release is not allowed to arrive silently. Under FINRA Rule 5131, at least two business days before any lockup is released or waived, the book-running lead manager must tell the issuer and announce the impending release or waiver through a major news service, with a narrow carve-out for transfers made for no consideration or to an immediate family member who accepts the same terms.

That rule turns a rumour into a published item on a schedule. A reader following a recent listing does not need to guess at a waiver, and does not need a data terminal to find one. It will be on the wire, and it will be there before it takes effect.

The Figma Example, With the Dates Straight

Figma listed in late July 2025, and the opening was extreme: Crunchbase News recorded the shares more than tripling on their first day of trading. About five weeks later the company filed its first quarterly results as a public business.

The results themselves were fine. As Sherwood News reported at the time, revenue climbed 41 per cent to $249.6 million, slightly ahead of what analysts had pencilled in, and the shares still dropped as much as 16 per cent in early trading. The explanation sat in the same announcement rather than in the numbers: roughly a quarter of the qualifying stock owned by particular staff and contractors would come free from 5 September 2025, while owners of around 54.1 per cent of the Class A line had separately accepted to a longer lockup releasing in quarterly tranches through June 2026, again according to Sherwood's account of the filing. Those tranches have all since run their course, so the company's supply overhang is now a matter of record rather than a pending event.

That early unlock hung on a price test, which produces an outcome worth sitting with: a strong run was the thing that opened the gate. The listing itself is unpacked further in our piece on what a first-day surge actually signals.

Four Things to Look Up Before the Date

All four sit on the investor relations page a listed company runs, or in its press releases, and none of them needs a subscription.

• The expiry date, plus any tranches that release before or after it.

• Whether an early release exists, and what triggers it: a price level, a results event, or the underwriter's discretion.

• How many shares become eligible, set against how many already trade.

• Whether the company has announced a repurchase programme that would take some of that supply back.

Then do the comparison rather than reading the headline number alone. Shares becoming eligible at several times the existing float is a different situation from a tranche worth a few per cent of it, and the ratio is the part that tells you which one you are looking at.

A Waiver Tells You More Than an Expiry Does

Most coverage fixes on the scheduled date. The position taken here is that the scheduled date is the least informative of the two events, and a release or waiver granted early is the one worth your attention.

The reasoning runs through what each event contains. An expiry is a calendar entry written into a contract months earlier, visible to every holder from the first day of trading, and by the time it arrives it has been priced by anyone who cared to price it. A discretionary release is a fresh decision, taken by people with better information than you, under conditions they are willing to accept. Nowak's results point the same way: his negative reaction was significantly stronger for voluntary lockups than for mandatory ones, which is what you would expect if the market reads a chosen restriction as carrying a message that an imposed one does not.

One kind of release is not news: where the early release was baked into the original agreement as a mechanical trigger and disclosed at listing, as with Figma's price-linked clause, it is not a fresh decision at all and contains no news beyond the trigger being met. In that case the scheduled date and the trigger are both just arithmetic, and the only question left is how large the supply is relative to the float.

None of this is a reason to act on a date. It is a reason to know which of two events you are reading, and to keep the supply question away from the separate question of what the business is worth, which our five-question scorecard and our walkthrough of pricing a fast-growing software company both handle on their own terms.

Known Date, Unknown Price

The supply change is scheduled and the price change is not. A drop around an expiry usually means the number of potential sellers rose, not that anything about the company got worse, and telling those two apart is most of the skill here.

This article is for educational and informational purposes only. It is not financial advice, and Investor Muse is not a registered investment advisor. Historical figures describe the past and do not predict future results. Speak with a qualified professional before you make decisions about your money.

Position disclosure: neither Investor Muse nor its editorial team holds a position in any company, fund or security named in this article.