Terms of IPO Lock-Up Agreements for Technology Companies Shift as Direct Listings and SPACs Gain Traction

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[co-author: Itka Safir*]

A recent Fenwick survey found that the length of IPO lock-up agreements for technology companies continues to predominantly be 180 days but that lock-ups are now increasingly subject to early release provisions in connection with trading blackouts and, in certain cases, achievement of performance-based milestones tied to stock price.

Lock-Up Agreements

When a technology company goes public, its underwriters typically require all of the company’s directors, officers, employees and pre-IPO investors (including VCs) to enter into lock-up agreements prohibiting them for a specified period of time from, among other things, selling any shares that were acquired prior to the IPO. Historically, these lock-up periods tended to last for a period of 180 days.

With the rise of alternative going-public structures—including direct listings and special purpose acquisition companies (SPACs), and the willingness on the part of investment banks to be more flexible in allowing companies to design lock-up structures that are tailored to fit their needs—we have seen a shift in the terms of lock-up agreements over the last few years.

Fenwick’s corporate group recently conducted a survey of more than 80 U.S.-based technology companies that have consummated an IPO since January 1, 2017, to ascertain whether lock-up agreement terms have meaningfully changed given recent market developments. The survey focused on three key lock-up agreement terms: length of lock-up, blackout release provisions and price-based release provisions.

Here are a few notable takeaways:

Conclusion

These trends, when combined with the rise in direct listings and SPACs, suggest that companies now have more leeway to advocate for more favorable lock-up terms for their directors, officers, employees and pre-IPO investors.

*Itka Safir is a summer associate in Fenwick’s corporate group.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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