When a company goes public with an Initial Public Offering, it has long been the practice that underwriters require major (sometimes all) prior shareholders to agree not to trade their shares into the public marketplace for 180 days.  This “lock-up” period permits the underwriters and market-makers to stabilize the price of the stock, and to protect the offering price against a sell-off of a large number of shares.

But, things are changing.  Starting in late 2020, many high-profile IPO companies have reduced the lock-up period.  This suggests a change in thinking about the IPO markets, or alternately hubris on the part of high-flyers that their companies are so strong that the sale of a chunk of shares will not work to deflate market price.

Companies that have reduced the 180-day lock-up include: Robinhood Markets, AppLoving Corp., SentinelOne, DoorDash, Airbnb and most recently, filings by Dutch Brothers, Inc. and ForgeRock Inc.

Developments in the securities markets can be credited with some of the impetus, as alternate methods of reaching public markets do not typically involve lock-ups: “direct listings” by companies placing shares on an exchange without underwriters, and using the SPAC acquisition model.

ForgeRock, which just went public, tied release of prior shares for public sale to the market pricing of its shares at  25% or more above the IPO price, a hedge against the IPO price getting walloped.  How common reduced lock-ups will become, and whether the ForgeRock approach will become common, cannot be predicted; IPO marketplaces can turn on a dime and smaller companies or companies coming out when IPOs are not “hot” could lead to a retrenchment.