Lock-Up Period
A period (usually 180 days) after an IPO during which insiders cannot sell their shares.
Definition
A lock-up period is a contractual restriction preventing company insiders (employees, founders, and pre-IPO investors) from selling their shares for a set period after an IPO, typically 180 days. This prevents a flood of selling immediately after the IPO, which could crash the stock price. Some IPOs have staggered lock-ups where different groups can sell at different times.
Why it matters
Even after an IPO, you cannot immediately sell your shares. During the lock-up, the stock price may rise or fall significantly. If the stock drops during lock-up, your equity loses value before you can sell. This is a real risk to factor into your financial planning.
Example
Your company IPOs at $40/share in January. Lock-up expires in July. During those 6 months, the stock drops to $25. Your 10,000 shares went from $400K on paper to $250K by the time you could sell. Some companies' stocks drop 20-40% around lock-up expiry.