Fund Structure
Lock-Up Period
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Quick Answer
The post-IPO period (typically 180 days) during which insiders and pre-IPO investors are prohibited from selling their shares.
A lock-up period is a contractual restriction preventing company insiders (executives, employees, early investors) from selling their shares for a specified time after an IPO — typically 180 days (6 months). Lock-ups exist to prevent a flood of insider selling immediately after IPO that would destabilize the new public stock price. Investment banks underwriting the IPO negotiate lock-ups as part of the offering. When the lock-up expires, insiders can begin selling — this 'lock-up expiration' often creates selling pressure and stock price volatility. VCs with large positions often sell gradually after lock-up expiration using 10b5-1 trading plans to avoid market disruption. In SPAC transactions, lock-ups are often shorter (6 months for sponsors, 1 year for PIPE investors).
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Comparisons
Frequently Asked Questions
What is Lock-Up Period in venture capital?
A lock-up period is a contractual restriction preventing company insiders (executives, employees, early investors) from selling their shares for a specified time after an IPO — typically 180 days (6 months).
Why is Lock-Up Period important for startups?
Understanding Lock-Up Period is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Lock-Up Period fall under in VC?
Lock-Up Period falls under the fund-structure category in venture capital. This area covers concepts related to how venture capital funds are organized, managed, and governed.
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