Afternoon Markets: What happens when a lock-up period expires can say a lot about a company.
What happened to GrubHub is interesting, but what’s going on with everyone’s favorite fake meat company is illustrative of something we need to keep an eye on.
According to Investopedia, lock-up periods usually last between 90 and 180 days after a company’s IPO, and they exist to prevent investors from flooding the market with lots of shares, which could make the stock’s price sink.
Also, if investors immediately started selling their shares when a company goes public, the optics of that would be poor–it could look like employees and investors are cutting their losses early, and that could affect the stock price.
For the companies whose lock-up periods haven’t expired yet, it’ll be interesting to see what happens when the trading restriction is lifted.
The lock-up period expiration will either cause a flood of employee and investor-owned shares hitting the market or perhaps a much-needed bump for its stock.