How Long Is an IPO Lock-Up Period, and What Should You Do While You Wait?

When the company you work for goes public, your equity shifts from an intangible asset to one that has a publicly traded market price.

But even as your net worth fluctuates in real time, you can’t sell immediately. After an initial public offering, employees, executives, founders and early investors are typically tied up in a lock-up period of around 90 to 180 days that restricts them from selling all of their shares at once.

During that months-long waiting game, “you’re not going to be able to change anything when it comes to your company stock,” says Angela Moore, an Orlando, Florida-based certified financial planner at Fruitful.

As frustrating as it can be to wait — and to have no idea what the stock price will be once you can sell — this period can also be key to your long-term financial planning. Use this time to understand your equity, estimate taxes and risk, and decide which experts you may want in your corner to help you through the process.

An IPO lock-up period is a restriction on company insiders and early shareholders to prevent them from trading their shares immediately after an IPO. While a lock-up isn’t mandated by the SEC, companies often choose to impose one so that shares have a chance to stabilize in the market, as a large sell-off can negatively impact share price [0]

No two lock-up periods are exactly the same, and there is usually fine print on when shares can be unlocked. SpaceX’s lock-up, for example, releases shares in stages based on factors such as dates and stock performance goals until the full release at 180 days. Elon Musk and other large investors have a longer lock-up of 366 days [0]

Companies must make their lock-up terms public in their registration documents, and you may receive more information and addendums closer to the IPO date. Read through your company’s IPO prospectus, equity plan documents, stock plan portal and internal communications to determine details such as:

An IPO is a major liquidity event, as it’s a moment that turns your company equity into cash that you can access. To make the most of this moment, preparing ahead of time is crucial.

Depending on when you joined your company, and the types of equity they’ve offered over time, you may have a variety of employee equity ranging from RSUs, ISOs, NSOs, ESPP shares and common shares. For each type and share lot, note important details such as the vest date, exercise cost, estimated worth, taxes and more. For a deeper dive into equity, we cover what to do with your stock when your company goes public.

When it comes to equity, Moore explains how she’s also concerned about the larger picture.

“As a financial planner, [I’d] know a broader scope,” she says. “Like their current income, the state they live in, their tax rate and their tax situation overall. A lot of clients will already have in their mind what they plan on doing with that money, so [I’m] also asking about their goals. … A liquidity event like that requires a good planning conversation way ahead of time, as soon as possible.”

A major concern for employees before their company goes public is concentration risk: How much of their financial portfolio is tied to their company stock?

Moore gives a hypothetical example of a 30-year-old employee with $80,000 in savings, $150,000 in a diversified brokerage account, and $600,000 in company stock.

“That means that the bulk of my money is in my company’s stock,” she says, “and that is a significant risk because if I were to lose that $600,000, my whole entire financial situation would be completely different.”

For those trying to balance their risk tolerance and belief in their company’s future, Moore offers these questions as a starting point: If someone handed you two million dollars, would you feel uncomfortable buying your company stock with all of it? Or would you do something else?

“That’s why planning matters because all those conversations need to happen,” she says. “How are we going to do this? How are we going to cover things? And everyone is different.”

The potential windfall from an IPO could be enough for all your short- and long-term financial goals, from paying off debt to purchasing a home to giving yourself a long sabbatical from work and more.

Or maybe it’s many goals, but you don’t have a firm timeline on any yet — you just know that once your company goes public, you’ll be overexposed and want to diversify your financial portfolio.

Part of the strategy of divesting from your company shares might be selling a portion during each future open trading window, but you can also set up a Rule 10b5-1 plan, which allows company insiders to preschedule stock sale options, even during blackout periods.

“Managing that concentrated stock position year after year in a strategic and systematic way is extremely important,” says Moore. “A 10b5-1 plan is basically a game plan. It’s a document that says, ‘I want to sell this number of shares if it hits this price.’ You determine the parameters.”

The firm managing your company’s equity awards, such as Morgan Stanley, Merrill Lynch or Charles Schwab, usually has equity specialists you can lean on for free to learn about your stock options.

Moore, who previously worked on the Corporate and Institutional Services team at Merrill Lynch, says these specialists can run a detailed analysis of your holdings, including a Black-Scholes valuation, to flag which lots carry the most risk and which options to exercise first. “It’s highly technical and created by experts so it’s way better, in my opinion, than you trying to execute stocks on your own during an open trading window,” she says.

As you make a plan for your employee equity, taxes are an unavoidable topic. A liquidity event such as an IPO is likely to trigger a multitude of taxes, depending on the type of equity and when you exercise, vest or sell.

For Moore, that’s why she stresses the importance of involving a certified public accountant. A CPA can estimate the bill before you sell and let you know how much to set aside.

“A simple conversation with a CPA could save you thousands, tens of thousands of dollars,” says Moore. She recalls a case where a simple conversation saved one client $30,000.

Timing matters, too. “The best time to meet with a CPA is not during tax time. It’s now, during the summer,” she says. “What you don’t want to do is have this major taxable event and then go to your CPA in the middle of tax season, when they’re … exhausted.”

“An IPO could mean amazing things, but it also could mean significant downside risk,” says Moore, noting the many factors that can affect company valuations, such as CEO behavior and company scandals, including BP’s oil spill and Enron’s accounting scandal.

While these incidents can be extreme, a stock doesn’t need a crisis to lose value. Disappointing earnings reports, shifting sentiment (both toward the company or its sector), or a wave of shares hitting the market after the lock-up period can push the share price down.