After a company lists, its founders, directors and early investors usually cannot sell their shares straight away. They are bound by lock-in agreements. For anyone investing before a listing, understanding the lock-in is essential.
What a lock-in is
A lock-in is an agreement not to sell shares for a set period after listing. It is typically signed by directors, senior management and significant shareholders, and sometimes by pre-IPO investors.
After the hard lock-in, there is often a further orderly-market period, during which sales are allowed but must be made through the company’s broker in a way that does not disrupt the share price.
Why lock-ins exist
Public investors buying shares at listing want confidence that the people who know the business best are not about to sell. If founders and early backers could sell on day one, it would signal a lack of faith and could put heavy pressure on the price.
Lock-ins align insiders with new investors. Everyone shares the same interest in the business performing after listing.
Some markets require lock-ins by their rules for certain companies. Even where they are not required, advisers and investors will usually expect them.
How long they last
Lock-in periods vary with the market, the company and what investors will accept. Twelve months is common for directors and key shareholders, often followed by a further orderly-market period. Pre-IPO investors may agree shorter or longer terms, depending on what they negotiated.
What it means for early investors
If you are investing before a listing, the lock-in tells you when you can realistically access your money. Your return is not realised at listing, but at the point you can sell.
Ask before you invest: will I be locked in, for how long, and on what terms can I sell afterwards? The answers shape the real timeline of the investment, and they should be in the documents from the start.
Mark Johnson is the Founder of BDM Capital, which introduces capital raising opportunities across bonds, loan notes, IPOs and SEIS/EIS. To discuss a raise, get in touch.
Frequently asked questions
Because lock-in agreements, required by the market or the advisers, prevent directors and major holders from selling for a set period. This reassures new investors that insiders are not using the listing as an exit.
Commonly six to twelve months, sometimes longer for founders, often with a further period during which sales must go through the company’s broker.
A large volume of shares can become available, which may weigh on the share price. Companies and brokers often manage this with staged releases or orderly market arrangements.
BDM Capital is not authorised or regulated by the Financial Conduct Authority. This article is general information, not financial, tax or legal advice, and does not constitute an offer or invitation to invest. Capital is at risk and you may get back less than you invest. Written for founders and directors of businesses considering a raise. Take independent professional advice before making any investment decision.
