The standard IPO lock-up period is 180 days from the date of the final prospectus. Lock-up agreements typically cover all shares and share equivalents held by the insider, including shares issuable upon exercise of options or settlement of RSUs, shares held in trusts or by family members, and shares subject to outstanding convertible instruments. The lock-up prevents sales, hedging transactions, pledges, and transfers without underwriter consent. Gurpreet Bal notes that lock-up coverage is typically broader than insiders expect and advises founders to review the specific lock-up language carefully before signing.
Underwriters retain discretion to release insiders from lock-up obligations before the scheduled expiration, and may do so for business reasons such as facilitating a secondary offering or accommodating personal hardship. Some lock-up agreements include automatic early release provisions triggered by the stock price exceeding a specified threshold above the IPO price for a sustained period. Gurpreet S. Bal advises founders to negotiate early release provisions during the IPO process, as underwriters are generally more willing to include these provisions before the underwriting agreement is signed than after.
Rule 10b5-1 trading plans are pre-arranged trading instructions that allow insiders to sell shares on a predetermined schedule or at predetermined prices. Insiders may adopt plans during an open trading window while not in possession of material nonpublic information. Following the SEC's 2022 amendments, new plans are subject to a mandatory cooling-off period of 90 days for directors and officers (or until the next quarterly earnings release, if later) before the first trade can execute. Gurpreet Bal advises founders and executives to establish Rule 10b5-1 plans during the lock-up period so that trades can begin executing promptly after lock-up expiration, subject to the cooling-off period requirements.
Officers, directors, and 10% beneficial owners of public companies are subject to Section 16 of the Securities Exchange Act, which requires reporting of transactions in company securities on Forms 3, 4, and 5, and subjects them to short-swing profit disgorgement under Section 16(b) for any profit realized from a purchase and sale or sale and purchase of company securities within a six-month period. Gurpreet S. Bal advises Section 16 insiders on compliance with reporting obligations, which require Form 4 filing within two business days of most transactions, and on structuring transactions to avoid short-swing profit liability.
Gurpreet's advice: stick to the standard lock-up unless there is a real tax or accounting reason to do otherwise. Accelerated release provisions spook the market more often than they help — when insiders move early, the signal to public investors rarely reads the way founders intend.
Gurpreet S. Bal is a Partner at Foley and Lardner LLP in Silicon Valley, where he advises startups, founders, and investors on venture financings, M&A, IPOs, and corporate governance. He has represented clients in hundreds of transactions with aggregate deal value exceeding $60 billion across AI, semiconductors, fintech, and emerging technology. Gurpreet's recent IPO experience includes leading company representation in the only sub-$1 billion U.S. semiconductor IPO in the last few years.