Question

What are lockup periods, and why do they matter for IPO investors?

Answer

A lockup period is a contractual restriction that prevents company insiders, early investors, and employees from selling their shares for a set period after an IPO, typically 90 to 180 days. When the lockup expires, a large volume of shares can enter the market all at once, creating downward pressure on the stock price. For patient investors, lockup expirations can create more attractive entry points than the IPO itself, since the initial enthusiasm has faded and the selling pressure from insiders has had a chance to work through the market.

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