Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Founders Time Their Exit Around the Lockup Expiry
Transcript
- Lucas: So the other day, I was talking to a founder who went public about eighteen months ago, and he told me he sold his first post-lockup shares at the absolute bottom. He waited through the lockup, then dumped everything the first week he could. And I kept thinking — that's such a common story, and it's completely avoidable. Luna: Yeah, I've heard that too. It's like the lockup expiry is this big red date on the calendar, and everyone treats it as a single event. But it doesn't have to be. Lucas: Right. And with the market we're in right now — Apple down eight and a half percent in five days, Microsoft up twenty-six percent — the timing of when you sell can swing your payout by millions. So today I want to dig into the strategy behind the lockup expiry. Not just the mechanics, but how smart founders actually time their sales. Luna: Okay, I'm with you. So where do we start? Lucas: Let's start with the basics, because the lockup is often misunderstood. When a company goes public, insiders — founders, early employees, VCs — are typically barred from selling their shares for a set period, usually a hundred and eighty days. That's the lockup. The idea is to prevent a flood of insider stock from hitting the market right after the IPO, which would tank the price. Luna: And the expiry is when the floodgates open. But it's not always a cliff, right? Some companies stagger it. Lucas: Exactly. More and more companies are using staggered lockups now. So instead of one date when everyone can sell, you see releases at ninety days, a hundred eighty days, maybe two hundred seventy. That gives the market time to absorb the supply. But even with a single date, the founder has choices. Luna: What are the main choices, then? Lucas: The first is the most obvious: sell immediately on expiry. That's what my friend did, and it's what a lot of founders do because they're terrified of holding concentrated stock. But the problem is, you're selling into a predictable wave of supply. Everyone else is selling too. The stock often dips right after lockup expiry purely because of that supply. Luna: And that dip can be brutal. I remember studies showing the average stock drops a few percent in the weeks after lockup expiry. Lucas: Right. So the alternative is to be more deliberate. You can work with your underwriter to set up a 10b5-1 plan before the expiry. That's a pre-scheduled trading plan that lets you sell a set number of shares at set times or prices, and it gives you an affirmative defense against insider trading accusations. But more importantly, it forces you to think about your selling strategy ahead of time, not in the heat of the moment. Luna: So it's like a commitment device. You decide you're going to sell a little each month over a year, and you stick to it. Lucas: Exactly. And that smooths out your selling over time, so you're not dumping everything into that first dip. You might catch some lower prices, sure, but you also catch some higher ones. And you avoid the worst of the timing risk. Luna: But what about the founder who's convinced the stock is going to run? They might want to hold everything and sell later. Lucas: That's the other extreme. And look, some founders have the conviction and the risk tolerance to hold. But you have to remember, you're already massively undiversified. You've got your human capital tied up in the company, and now your financial capital is too. Selling a meaningful chunk at lockup expiry — even if it's not all — is often the smart move. Luna: So the sweet spot is somewhere in between. Sell some early to lock in gains, but keep some upside. Lucas: Right. And that's where the real strategy comes in. I've seen founders structure their sales in tranches. Maybe they sell ten percent right at expiry to cover taxes and a new house, then another ten percent six months later, and so on. It's a balance between liquidity and upside. Luna: And that's also where the current market conditions come into play. With tech stocks moving this much in a week, the timing decision is even harder. I mean, Microsoft is up twenty-six percent in five days. If you're a Microsoft founder, you might be tempted to sell everything now. Lucas: And if you're an Apple founder, you're watching your stock drop eight percent in a week and you're wondering if you should cut your losses. But that's the trap — reacting to short-term moves. The lockup strategy should be set based on your personal financial plan, not on what the stock did last week. Luna: But you can't ignore valuation entirely. If the stock is up huge, it might be prudent to sell more. Lucas: Definitely. And that's where the conversation with your financial advisor comes in. They can help you think about your target allocation to a single stock, and then you work backwards from that. If the stock has run up so much that it's now sixty percent of your net worth, maybe you sell more than you originally planned. Luna: So it's not just about a date on the calendar. It's about a portfolio decision. Lucas: Exactly. And one more piece of that is the quiet period. After the IPO, there's a quiet period where the company and its underwriters can't promote the stock. That ends forty days after the IPO. But around lockup expiry, there's often a new set of research reports from the underwriters. Those can influence the stock price, so you want to be aware of when they're coming out. Luna: So if the analyst comes out with a buy rating right before your lockup expiry, that might be a good time to sell a chunk. Lucas: Exactly. The underwriters want to support the stock, so they might time their research to coincide with lockup expiries to help absorb the selling pressure. But you have to be careful not to rely on that. The research is often overly optimistic. Luna: Now, I want to go back to something you mentioned earlier — the idea of using a 10b5-1 plan. Is that something a founder can set up before the lockup expires, or do they have to wait? Lucas: Great question. You can set up a 10b5-1 plan at any time, but there's a catch. If you set it up while the lockup is still in effect, the plan can't start executing until after the lockup expires. And there's a cooling-off period too — usually ninety days for officers and directors. So you need to plan ahead. Luna: So if you're a founder and you're approaching your lockup expiry, you should have set up that plan months ago. Lucas: Exactly. And that's the kind of thing that separates the prepared founders from the ones who scramble. The prepared ones have their plan in place, they know how much they're selling and when, and they're not making decisions based on the stock's last five-day move. Luna: It's a bit like an athlete training for a race — you don't decide your strategy the morning of. Lucas: Yeah, and honestly, if these conversations are useful for what you're building or running, and you want to keep them ad-free, there's a small way to help. It's buy me a coffee dot com slash fexingo. That's it. No pressure. Luna: And it genuinely helps us keep doing this. Every little bit counts. Lucas: Right. So back to the lockup. One more angle I want to hit is what happens after the lockup expiry, specifically the so-called 'lockup dip' and how founders can navigate that period even after they've sold. Luna: Oh, the aftermath. Because even if you've planned your sales perfectly, the stock might still drop, and that can be stressful. Lucas: It is. But here's the thing: the dip is often temporary. Sometimes it's just the market absorbing the supply, and the stock recovers in a few months. But sometimes it's a signal that the market is repricing the company. So you need to be able to tell the difference. Luna: How do you tell the difference? Lucas: Look at the fundamentals. Is the company hitting its numbers? Are revenues growing? Is the cash flow positive? If the stock is dropping purely because of supply, the fundamentals should be intact. If the stock is dropping because the company missed guidance, that's a different story. Luna: So you have to separate the noise from the signal. Lucas: Exactly. And that's where a lot of founders get emotional. They see the stock down twenty percent a month after lockup expiry and they panic. But if the business is doing well, that might be the time to hold, or even buy more if you can. Luna: It's counterintuitive, but sometimes selling everything at lockup is the worst thing you can do. Lucas: Right. And I want to give a concrete example. Let's take a fictional company, but one that's typical. Say a founder goes public at thirty dollars a share. Lockup expires six months later, and the stock has drifted to twenty-five. They sell everything at twenty-five. But then, a year later, the stock is back to forty. That's a real scenario that plays out all the time. Luna: And if they had sold only half at twenty-five, they'd have a lot more upside later. Lucas: Exactly. And that's the core lesson today: don't treat lockup expiry as a one-time liquidity event. Treat it as a starting point for a deliberate selling strategy that aligns with your financial goals and your conviction in the company. Luna: So what's the one piece of advice you'd give to a founder approaching lockup expiry right now? Lucas: Set up your 10b5-1 plan early, work with a good advisor, and decide ahead of time how much you need to sell to feel financially secure. Then stick to that plan, and don't let the daily stock price rattle you. The market is noisy, but your plan shouldn't be. Luna: That's a great place to leave it. Thanks for joining us, everyone. Lucas: Yeah, thanks for listening. We'll see you next time.