Working for an organization as it opens up to the world can be an extremely thrilling and remunerating experience. If you have organizational stock, an IPO implies there will be a public market for your positions. Initial public offerings make it a lot simpler to sell investment opportunities after the lockup time frame.
After going public, there is a typically a 90 to 180 day lockup period in which insiders and early investors can’t sell their stock positions. While you stand by, it’s a good opportunity to review the worth of your stocks and ISOs.
If you’re a current employee, the organization has (ideally) spoken with you about the lockup time frame. In an ordinary IPO, the financier might necessitate that the lockup reaches out to earlier workers. In these cases, you will receive a letter outlining the lockup period. In other cases, you may need to research and read through the company SEC filings. This is a good time to bring in a wealth management consultant.
If your company is going public through a special purpose acquisition company (SPAC) you will also most likely have a 180-day lockup period. By contrast only direct public listing IPOs don’t have lockup periods.
Lockups periods can vary widely. Lockup periods are expressed in number of days, occasion-based (for example, arriving at a specific stock price or a company profit level), a blend of the two, or a multi-stage lockup release. To make matters more complicated, these lockup provisions can change after the organization goes public and opens up to the world! Because of these intricacies, one should truly consider working with financial planning consultant who specializes in ISOs and executive compensation consulting.
Even if you are bullish on your company’s future, it is often prudent to diversify your holdings after the lockup period. Often other executives will also be liquidating and diversifying during this time so a strategy is important. Too much selling can adversely affect the stock price.
If you intend to leave the organization before the first sale of stock or during the lockup time frame, you need to read the details of the ISOs in detail to determine if you may lose unvested or unexercised shares. Sometimes companies will allow exercise of ISOs up to 90 days after your last day of employment but you need to check the details.
If you have non-qualified stock options (NSO) then you may have more choices than ISOs after your employment ends but review the terms of the NSOs carefully. Regardless whether you have ISOs or NSOs, consider what the circumstance of the lockup time frame might mean for your choices in the post-employment timeframe.
Important Disclosure
This article is for informational purposes only and not to be misinterpreted as personalized advice or a recommendation for any specific investment product, strategy, or financial decision. This article does not contain sufficient information to support a financial or investment decision. If you have questions about your personal situation, consider speaking with a financial or tax advisor.
