IPO Lock-Up

Finance allah shmoop what is ah lock up agreement Okay

You invested your dough in the original round of this

venture capital like investment or you're a founder whose entire

network lives in the form of stock in your hot

little new company Dot com you sold a portion of

it to the public earlier in your aipo raising a

big fat pot of money for you to go spend

opening new sales channels in china Uzbekistanian and somalia Yeah

good luck with that So now you're desperate to sell

some percentage of your holdings You've been dying to buy

that new tesla suv with the gullwing doors and you

know self make upping feature But you can't buy it

Why Well because your locked up and it's nothing prunes

will solve You signed a contractual agreement when you did

the original handshake with the investment bankers who were taking

you public You agreed that you would follow what are

called the one forty four a laws which restrict insiders

from selling any shares until to quarters and change have

fast during which a company is newly public Well why

do these laws even exist Well because a bunch of

scummy city slickers screwed over a bunch of uneducated farmers

in a bygone era such that the government had to

step in and make everyone play fair and square like

they dumped their shares the minute the company was public

on unsuspecting farmers who paid eighty seven dollars share only

to watch the stock trade down to eighty seven cents

a share two years later or even less Yeah that

happened right Well the general idea here is that if

a company can show professionally audited public Numbers 4:6 months

and change of being a public company well then they

wouldn't have been able to hide something deep dark fraud

like elements about their business that it was all kind

of a shell game against those poor farmers Well everyone

would be playing then on the same level playing field

and it would be fair upon public notice for insiders

to sell some limited percentage of their total holdings and

get liquid well in practice all kinds of restrictions exist

against freeform insider selling so a maximum total percentage owned

per month recorder per year is out there their maximum

ceilings against which total volume can't be certain passed in

a given day like if a million shares trade in

a day you can't sell more than five percent or

fifty thousand shares in a day And a bunch of

other restrictions exist that are designed to mitigate the spread

between information held by insiders and information held by outsiders 00:02:40.645 --> [endTime] Yeah other outsiders