Sell or Hold: Employee Lockup Periods

One of the stock market headlines of the day was the lockup period ending for Uber.

When a company goes public through a traditional IPO process, the investment banks who lead the underwriting will restrict early investors and insiders, including employees, from selling their shares for a specific period — usually 180 days after the company goes public.

The lockup period is purported to help stabilize the stock price after an IPO which traditional is already very volatile. There’s a lot of other things going on besides price stabilization including banks using this period to gain additional profits for themselves, but that’s for another post and another day.

The end of a lockup period traditionally signals large sell offs by employees and investors as they finally hope to achieve liquidity.

On October 29, Beyond Meat’s lockup expired and shares fell 18.8%. On August 19, Lyft’s lockup period expired and shares gained during the day before closing down 1.5%. Today, Uber shares hit an all-time public low and closed the day down 3.85%.

As a fan of the markets and someone who follows private companies for a living, it’s a fascinating day to analyze.

Employees are finally allowed to achieve their liquidity they’ve been hoping for so they can buy homes, start businesses, etc. Most have been waiting years for this moment and many will now be able to achieve the dreams they’ve been waiting for.

On the other hand, investing is never easy and emotions always play a large hand. What if the stock continues to rise? Next year, it could be worth double the value.

I always tell clients and friends that this is a great problem to have, but unfortunately not an easy problem to have. The large majority of clients will either cash out completely or take a portion such as half off the table now.

This is a new age of the stock market. Never have we seen this many unprofitable highly valued companies hit the public market and so far the public markets have not responded well, especially on the consumer side.

I don’t know what the answer is in regards to someone who holds Uber stock. If it were me, I would create a selling plan at set times to take the emotion out of this while still holding on for some potential future growth. Only time will tell what the best move here is.