After an IPO, early investors typically hold shares subject to a lock-up period. The price at listing can change substantially before they are free to sell.
10 min read · Level 5
I think the listing day number is the most celebrated and least spendable figure in private investing. The investors who handle IPOs well are those who treat the lock-up as a period of concentrated risk and decide their sale plan before emotions attached to the listing price take over.
When a company lists its shares, preferred shares usually convert into common shares that start trading. Early investors, founders and employees are typically restricted from selling for a lock-up period, commonly around 180 days in U.S. listings, though terms vary.
During the lock-up, the investor's position is valued at the market price but cannot be sold.
Angel's shares 50,000 Price on listing day 20.00 value 1,000,000 Price when lock-up ends 12.00 value 600,000 Change during lock-up -400,000, or -40%
When the lock-up ends, many holders become free to sell at once, which can put pressure on the price.
Some investors, especially funds, distribute shares directly to their own investors rather than selling them. For a fund's LPs, that means receiving shares that must then be managed or sold.
Because the day a company lists is often treated as the day early investors made money. In practice they hold a large, concentrated, unsellable position exposed to the full volatility of a newly listed stock.
It also matters for planning. An investor counting on IPO proceeds for another purpose may find the eventual value very different from the listing-day figure.
Educational, not personalised financial advice. Nothing in the Investor Academy is a recommendation to buy, sell or hold anything — what is right for you depends on your own circumstances and the rules where you live.
Planning a sale after lock-up. An angel's 50,000 shares were worth 1,000,000 on listing day.
Month 6 (lock-up ends): price 12.00, value 600,000 The angel sells half, receiving 300,000 Month 12: price 15.00, remaining 25,000 shares worth 375,000
Total realised and remaining: 300,000 + 375,000 = 675,000, about two thirds of the listing-day figure. The angel had set a plan in advance to sell in stages after lock-up, which reduced the risk of selling everything at a single low point but did not recover the listing-day value.
Treating the value of shares on listing day as money already made, when the shares cannot be sold until the lock-up ends.
Find how long the lock-up lasts and whether any early release conditions apply.
Consider how the value would change if the price moved 30% or 50% before you can sell.
Decide in advance whether to sell all, part or hold, and on what schedule.
Selling at different times may lead to different tax outcomes; seek advice for your situation.
When a company you hold announces or completes a public listing.
Do not assume share prices fall after every lock-up. Outcomes vary; the point is that the position is exposed to price risk until it can be sold.
Academic studies of IPOs, including research published in finance journals analysing U.S. listings, have found on average abnormal negative returns around lock-up expiration dates, although effects vary widely by company and market conditions.
Expect possible price pressure as lock-ups end, and plan sales accordingly.
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