Private Share Lock-Up
Definition
A private share lock-up is a restriction that prevents holders from selling or transferring private shares, SPV interests, fund interests, or employee equity for a defined period or until specified conditions are met. Lock-ups can arise from company documents, tender offers, fund agreements, option plans, or transaction documents.
Why it matters
Lock-ups can turn apparent wealth or paper gains into unavailable liquidity. For pre-IPO employees, SPV investors, and secondary buyers, lock-ups affect exit timing, valuation discounts, financing choices, and tax planning. Investors should separate current mark, secondary bid, and legally transferable position.
Common misconceptions
- •A company being valuable does not mean holders can sell immediately.
- •IPO lock-ups and private-transfer lock-ups are related but different.
- •A tender offer may create a temporary liquidity window while imposing restrictions before or after the transaction.
Technical details
Common sources
Employee equity plans, restricted stock agreements, investor rights agreements, ROFR agreements, tender offer documents, fund LPAs, SPV operating agreements, and underwriting agreements can all impose lock-ups.
Lock-ups may be date-based, event-based, consent-based, or tied to insider status and information-policy restrictions.
Economic effects
Lock-ups can increase valuation discounts because buyers cannot freely resell. They can also create forced timing, where many holders become eligible to sell around the same date.
For option holders, a lock-up can interact with exercise costs and tax bills, especially when liquidity is delayed.
Diligence questions
What exact asset is locked: company shares, SPV interests, option shares, or fund interests?
When does the restriction expire, and can it be extended?
Are transfers to affiliates, trusts, family members, or financing providers treated differently?