Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Founders Use Pre-IPO Lockups to Signal Confidence
Transcript
- Lucas: So, Luna, you know that moment when a founder decides to lock themselves in for an extra six months after their company goes public? That's not just a passive move — it's a deliberate signal, and it's one of the most underrated pieces of exit strategy. Luna: You mean voluntarily extending the lockup beyond the typical one hundred eighty days? That's a pretty bold move, especially when everyone's counting down to the first day they can sell. Lucas: Exactly. And it's not just about patience. In August 2026, with the market showing some real jitters — you've got Meta down over six percent in the last five days, Rivian down over seven — a founder stepping up and saying 'I'm holding my shares for a full year' can be a powerful counterweight to that nervousness. Luna: Right, because the lockup expiry is often the moment when insiders flood the market and the stock dips. Delaying that could keep the price steadier for longer. Lucas: Precisely. And it's a move we're seeing more often in high-profile IPOs. Take a company like the ones that listed in the last couple of years — a founder who extends voluntarily is basically telling the market, 'I'm not here for a quick payday, I'm building something long-term.' Luna: That's a strong signal, especially when retail investors are watching. So how does a founder actually decide to do this? Lucas: Well, first, you have to weigh the upside against your own liquidity needs. If you've got personal debts or you're planning to fund another venture, holding your shares for a year might not be feasible. But if you can afford to wait, the benefits can be meaningful. Luna: Let's talk about the mechanics. How does a voluntary extension actually work in practice? Lucas: Typically, you'd announce it in the IPO prospectus or as a separate filing. You commit to not selling any shares for a period longer than the standard lockup — say, three hundred sixty-five days instead of one eighty. It's a binding agreement with the underwriters. Luna: And what's the reaction from institutional investors? Do they see it as a positive? Lucas: Generally, yes. It aligns your interests with theirs. They're often more willing to hold the stock if they know the founder isn't going to dump shares at the first opportunity. It can even help with the IPO pricing — a stronger signal might support a higher price range. Luna: But there's got to be a downside. You're locking up your wealth in a single volatile asset. Lucas: Absolutely. If the stock tanks after the IPO, you're stuck holding depreciated shares. And you can't use hedging strategies like collars or prepaid forwards because those are often prohibited during the lockup. So you're taking on real concentration risk. Luna: So it's a bet on your own company's future. That's a powerful narrative, but it's not for everyone. Lucas: Exactly. And it's interesting to see how the market rewards that narrative. A founder who extends can become a talking point — it can even influence the stock's performance on the first day of trading. Luna: Speaking of first-day trading, we did an episode on listing day strategies a while back. This feels like a natural follow-up. Lucas: It is. And while we're on the topic of things that listeners might find valuable — if you're building a company or just love these conversations, you know, the show wouldn't be possible without listener support. If today's episode was worth a coffee to you, the link is buy me a coffee dot com slash fexingo. No pressure, just a little way to keep us ad-free. Luna: Yeah, every little bit helps us keep digging into these stories. And honestly, it's a way to say thanks without any strings attached. Lucas: Right. So, back to lockups. There's also a legal angle. Founders have to be careful about insider trading rules. Even with a voluntary extension, you're still subject to Rule 10b5-1 plans if you want to set up future sales. Luna: So you can plan ahead, but you have to do it within the rules. That adds a layer of complexity. Lucas: It does. But it's manageable. You work with counsel to set up a plan that allows you to sell a certain number of shares per month after the lockup ends. It shows discipline. Luna: Is there a difference between how tech founders and founders in other sectors approach this? Lucas: Tech founders tend to be more willing to extend, because they're often younger and more willing to take on risk. They've already got a high risk tolerance from building the company. In more traditional industries, founders might be closer to retirement and need liquidity sooner. Luna: That makes sense. And what about the current market? With rates where they are in August 2026, does that play into the decision? Lucas: Definitely. Higher rates mean the opportunity cost of holding shares is higher, because you could sell and invest in bonds. But it also means the market is more volatile, so locking in a steady price might be more attractive. It's a trade-off. Luna: Let's talk about a specific example. Are there any notable founders who did this recently? Lucas: One that comes to mind is the founder of a cloud security company that IPO'd about a year ago. He announced a two-year lockup. The stock has been remarkably stable, even when the broader market was down. That's not just luck — that's credibility. Luna: Two years is a long time. But it worked for him. What about the flip side — founders who regretted extending? Lucas: There are stories, though they're less public. One founder I know extended for a year, and the stock dropped thirty percent. He was stuck. He couldn't sell, couldn't hedge. He told me he'd never do it again. Luna: So it's a gamble. But it's a calculated one. What advice would you give to a founder considering this? Lucas: First, look at your personal financial runway. Can you afford to see your net worth on a rollercoaster? Second, talk to your underwriters — they might have strong opinions. Third, think about your narrative. Are you ready to publicly commit to the long-term story? Luna: And if you do it, make sure you communicate it clearly. It's not just about the length, but the message. Lucas: Right. The lockup is a piece of the puzzle. It's not a silver bullet, but it's a signal that can shape how the market sees you. As we head into the fall, with IPOs picking up, I expect we'll see more founders using this strategy. Luna: It's a bold move. But for the right founder, it can be a game-changer. Lucas: That's the takeaway. Know your own risk tolerance, and use the lockup as a tool, not just a waiting period.