Get your free personalized podcast brief
We scan new podcasts and send you the top 5 insights daily.
Transfer agents, the official record-keepers for public companies, often rely on slow, paper-based processes. This can cause investors to wait over nine days post-lockup to receive their shares, exposing them to significant market volatility. One family office reported an average 10% price delta due to these delays.
Related Insights
Best practice for index funds is to add IPOs within 3-5 days to capture early returns. The critical and often-missed step is to be 'float-adjusted,' meaning the fund only buys a proportion of shares available to the public, preventing index demand from artificially inflating the price of a limited supply.
By not fast-tracking SpaceX's inclusion, the S&P 500 withholds a crucial "wall of automatic demand" from passive index funds. This means when insider shares unlock, SpaceX must rely on active investors to buy them, potentially creating significant price volatility that would have otherwise been absorbed by passive inflows.
For highly-capitalized companies like SpaceX and OpenAI, bankers are designing new IPO structures. Instead of standard 90-180 day lockup periods, they're planning staggered share releases over a longer timeframe to manage immense selling pressure from a large base of private shareholders and prevent post-IPO stock volatility.
The default VC practice of distributing shares after an IPO lockup can leave massive gains on the table. Missing a multi-billion dollar run-up suggests a more nuanced, case-by-case discussion with LPs is needed, as holding can be the difference between a 5x and a 15x fund.
The paper wealth generated on IPO day is a misleading metric due to lockup periods and market volatility. A more accurate mental model for an investor's actual return is the company's market capitalization 18 months after the public offering. This timeframe provides a truer 'locked in value' after initial hype and selling pressure subsides.
The standard VC practice of distributing shares to LPs immediately after a lockup expires can be a multi-billion dollar error. The case of selling Reddit at a $9B valuation, only to see it rise much higher, highlights that VCs may need to evolve into holding public positions longer, challenging the traditional model.
By delaying IPOs, highly-valued private companies concentrate wealth among a small group of early investors. When they finally go public, regulations often compel passive funds and 401(k)s to buy in at peak valuations. This forces retail investors to become the "bag holders," assuming significant risk after most of the value has already been created.
For trillion-dollar private companies like SpaceX going public, the traditional 90-180 day lockup period is inadequate. The massive volume of insider shares hitting the market at once could crash the stock. Investment bankers are now designing staggered lockup releases to manage this unprecedented liquidity event.
A predictable pattern in IPO investing is a stock price decline following the 90 to 180-day lock-up period. This occurs when insiders (employees, founders) are finally allowed to sell their shares, flooding the market with supply and often causing the price to crater.
Academic research covering decades of data reveals a clear trend: newly public companies tend to underperform the broader market by an average of 20 percentage points in the three years following their IPO. This underperformance is even more pronounced for high-valuation firms, serving as a cautionary tale for investors chasing IPO hype.
