Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Founders Handle Post-Exit Lockup Expiry
Transcript
- Lucas: So you've taken your company public, you've rung the bell, you've celebrated. But there's this date on the calendar, usually about six months out, that can quietly undo all of that goodwill. I'm talking about the lockup expiry. Luna: The lockup. That's the period where insiders can't sell their shares. For most IPOs it's 180 days, right? Lucas: Exactly. And when it lifts, suddenly a flood of shares becomes sellable. Founders, employees, early investors — they've been waiting for months to cash in even a little. The market knows this. So the stock often starts drifting down in the weeks before the lockup expires, purely on anticipation. Luna: So it's almost like a self-fulfilling prophecy. Everyone expects selling pressure, so they sell early, which creates the pressure. Lucas: Right. And that's why a lot of founders dread it. But here's the thing — the lockup expiry doesn't have to be a disaster. There are ways to manage it, and some of them start months before the date even hits. Luna: What are the options? I imagine founders can't just dump shares the day after lockup without causing a panic. Lucas: Absolutely. A smart founder works with their bank to set up a Rule 10b5-1 trading plan. That's a pre-scheduled plan to sell shares over time, which avoids insider trading concerns and signals to the market that selling is systematic, not reactive. Luna: That's the kind of thing that can smooth the impact, right? Instead of one massive dump, you get a steady trickle that the market can absorb. Lucas: Exactly. And the market actually likes that predictability. It removes the overhang. I've seen cases where a well-communicated trading plan actually helped the stock after lockup, because the uncertainty was gone. Luna: But what about the founder who wants to hold? Maybe they believe in the long-term story. They don't want to sell a single share. Lucas: That's a legitimate choice too. But even then, you have to think about the optics. If a founder does nothing, the market might assume they're about to sell anyway. So communication is key. Some founders voluntarily extend their lockup by a few months, just to signal confidence. Luna: Voluntarily extending? That's a bold move. I remember when Palantir went public, they had a really long lockup — like over a year. And the stock still had a rough patch when it lifted. Lucas: Palantir is a great example. Their lockup was unusually long, and when it finally expired, there was massive selling pressure. The stock dropped significantly. But look at them now — they're up nearly eight percent in the last five days, trading at around one seventy-five. So the long-term story can survive, but it takes patience. Luna: So what should a founder do in the months before the expiry? Is there a checklist? Lucas: First, they need to know their lockup terms intimately. Some lockups have early release provisions, like if the stock trades above a certain price for a certain number of days. That's rare, but it exists. Luna: Right, the so-called 'performance-based' lockups. I haven't seen many of those lately. Lucas: No, they're not common. The standard is a fixed 180 days. But the key is to have a plan. Whether you're selling or holding, you need to decide in advance and communicate it clearly to the market. Luna: Communicate. But how do you do that without sounding like you're managing expectations? There's a fine line between transparency and panic. Lucas: You're right. It's about framing. A founder can say, 'I believe in the company long-term, and I've set up a trading plan to diversify my personal holdings gradually.' That's a mature, investor-friendly message. It's not a red flag. Luna: What about hedging? Some founders use collars or prepaid variable forwards to protect against a drop, without actually selling shares. Lucas: That's a sophisticated move, but it's not for everyone. It can be expensive, and it can send a mixed signal. And if the stock rises, you might miss out on upside. But for a founder with a huge concentration in one stock, it can be a way to reduce risk without losing control. Luna: Makes sense. So it's really about having a strategy, not just letting the lockup expire and hoping for the best. Lucas: Exactly. And that's why I wanted to talk about this. So many founders focus on the IPO itself, but the lockup expiry is often the bigger test of their discipline. Luna: And it's not just the founder. Employees are also part of the lockup. They might have options or restricted stock. They're watching the stock price too, and they might be eager to sell. Lucas: That's a huge point. The founder has to think about morale and retention. If employees see the stock tank after lockup, they might lose confidence. Some companies use this as an opportunity to offer new equity grants or retention bonuses. Luna: So it's almost like a second act of the IPO process. You have to manage the narrative again. Lucas: Exactly. And the market is watching. Look at Airbnb — they had a lockup expiry in late 2021, and the stock dropped. But then it recovered over time. Now it's up twenty-three percent in just five days, trading around one eighty-four. The company is doing fine. It's just a matter of weathering the storm. Luna: So the lockup expiry is really a test of nerves. And a test of preparation. Lucas: It is. And on that note, I want to mention something that helps us keep doing these deep dives into founder exits. We're listener-supported, no ads. A small group of regular listeners chips in monthly through buy me a coffee dot com slash fexingo. That's what lets us spend the time on episodes like this. Luna: Yeah, we really appreciate the folks who do that. It keeps us independent and focused on what matters to founders. Lucas: So, back to the lockup. One more thing I think founders often underestimate is the psychological aspect. After years of building a company, seeing your net worth fluctuate by millions in a day is jarring. It helps to have a financial advisor and a therapist on speed dial. Luna: A therapist? That's a realistic take. This is a highly stressful moment, and not just financially. Lucas: Right. And the decisions you make in that stress can be costly. That's why having a pre-committed plan is so valuable. You're not making emotional decisions in the heat of the moment. Luna: So, for a founder listening, what's the one takeaway you'd want them to remember? Lucas: The lockup expiry is a planned event, not a surprise. You can prepare for it. Set your trading plan, communicate your intentions, and stay disciplined. The market will respect that. Luna: And if you're an employee, maybe start thinking about your own plan now, rather than waiting for the date. Lucas: Absolutely. For everyone involved, the lockup is a marathon, not a sprint. But with the right approach, you can cross the finish line without stumbling. Luna: Well said. That's a solid place to wrap up. Lucas: Thanks for joining us. We'll be back tomorrow with another angle on founder exits. Until then, keep building.