Lock-Up Agreement

Okay, you invested your dough in the original round. Or you’re a founder whose entire net worth lives in the form of stock in your hot little company. You sold a portion of it to the public in your IPO, raising a big fat pot of money for you to go spend opening new sales channels in China, Uzbekistan and Somalia.

So now you’re desperate to sell some percentage of your holdings. You’ve been dying to buy that new Tesla SUV with the gullwing doors and self-make-upping feature. But you can’t. Why? Because you’re locked up. And it’s nothing prunes will solve.

You signed a contractual agreement when you did the original handshake with the investment bankers taking you public. You agreed that you would follow what are called the 144a laws which restrict insiders from selling any shares until two quarters and change have passed, during which a company is newly public.

Why do these laws exist? Because a bunch of scummy city slickers screwed over a bunch of uneducated farmers in a bygone era such that the government had to step in and make everyone play fair and square. The general idea is that, if a company can show professionally audited public numbers for 6 months and change, then they wouldn’t have been able to hide some deep dark fraud-like elements about their business.

Everyone would be playing on the same level playing field and then it would be fair, upon public notice for insiders to sell some limited percentage of their total holdings. In practice, all kinds of restrictions exist against free-form insider selling. So a max of a total percent owned per month, per quarter, per year...some max ceiling against total volume in a given day...and a bunch of other restrictions designed to mitigate the spread between information held by insiders...and information held by outsiders.