What Is an IPO Lock-Up Period? Explained

An IPO lock-up period is a contractual window, typically 90 to 180 days after a company goes public, during which insiders — founders, employees, and early investors — are barred from selling their shares. It exists to prevent a flood of insider selling from hitting the market right after the stock starts trading, when the share price is often still finding its footing and the float is thin. Once the lock-up ends, that restriction lifts all at once, which is why lock-up expirations are watched so closely.

Why underwriters require one

When a company completes an IPO, only a fraction of its total shares are actually sold to the public — the rest stay held by founders, employees with vested equity, and venture investors who backed the company pre-IPO. If all of those holders were free to sell on day one, the newly public stock could face enormous selling pressure before the market has had any real time to establish a fair price, since the number of shares actually available to trade (the float) starts out much smaller than the total shares outstanding.

The underwriting banks that manage the IPO require a lock-up as a condition of the offering specifically to prevent that scenario. It protects the new public shareholders who bought at the IPO price from watching the stock get hammered by a wave of insider selling in the first weeks, and it protects the underwriters’ own reputation — a stock that craters immediately after an IPO they priced makes for a bad track record.

How long a lock-up typically lasts

The standard lock-up runs 180 days, though 90-day lock-ups aren’t unusual, and some agreements include partial early releases — allowing a portion of shares to be sold at an intermediate date, such as 90 days in, with the remainder locked until the full period ends. The exact terms are negotiated between the company, its underwriters, and its major pre-IPO shareholders as part of the underwriting agreement, and they’re disclosed in the IPO prospectus.

A direct listing or a SPAC merger can involve different lock-up structures than a traditional underwritten IPO, since neither necessarily goes through the same underwriting relationship that motivates a standard lock-up in the first place — though SPAC deals commonly include their own lock-up terms for sponsor shares.

What happens when it expires

When a lock-up period ends, every insider who was restricted becomes free to sell simultaneously — there’s no gradual unwinding. This is known as a lock-up expiration, and it’s a well-known event that traders watch for, because a large number of newly tradable shares hitting the market at once can put real downward pressure on the stock price, independent of anything about the company’s actual performance. Not every lock-up expiration causes a selloff — much depends on whether insiders actually choose to sell, and how much of the float they collectively represent — but the possibility of one is priced into how the market treats the stock in the days around expiration.

Who is bound by it

Lock-up agreements typically cover the company’s officers, directors, and any shareholder holding above a certain ownership threshold — which in practice usually means founders, early employees with meaningful equity stakes, and the venture capital and private equity firms that invested before the IPO. Ordinary investors who buy shares on the open market after the IPO are never subject to a lock-up; the restriction only applies to those who held shares before the company went public.

Early releases and waivers

Underwriters sometimes grant an early release from the lock-up, allowing specific shareholders to sell before the full period expires — a practice known as a lock-up waiver. This is usually reserved for special circumstances, and it can itself move the stock, since the market treats an early release as a signal, whether or not the underlying reason is company-specific. Some lock-up agreements also include automatic early-release triggers tied to the stock price, freeing shares early if the price holds above a certain level for a sustained stretch.

Lock-up period vs vesting schedule

The two are often confused because both restrict when someone can turn equity into cash, but they solve different problems and run on different clocks.

	Lock-up period	Vesting schedule
What it restricts	Selling shares already owned	Earning ownership of shares in the first place
When it applies	After the company goes public	From the start of employment or the grant date, public or private
Typical duration	90 to 180 days	Several years, often with a one-year cliff
Who sets it	Underwriters, as a condition of the IPO	The company, as part of its equity compensation plan
What ends it	The fixed date in the underwriting agreement	Continued employment or tenure over time

An employee can be fully vested in their RSUs or stock options years before the company ever goes public, and still be locked up from selling those already-owned shares for months after the IPO. Vesting answers “do you own it yet”; lock-up answers “can you sell what you own, right now.”

The takeaway

An IPO lock-up period keeps insiders from selling their shares for a set window, usually 90 to 180 days, after a company goes public — protecting the newly formed float from a wave of early selling while the market finds a stable price. It’s distinct from vesting, which governs when equity is earned rather than when it can be sold, and its expiration is a well-known catalyst that traders watch closely because a large block of shares becoming sellable all at once can pressure the stock regardless of the company’s fundamentals.