Private Share Lock-Up

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.

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.

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?

Analyze Private Share Lock-Up under the exact statute, rule, exemption, fund document, security agreement, or transaction notice that creates it. Marketing summaries often compress separate concepts. Identify the issuer, fund, vehicle, investor, security class, exemption, calculation date, responsible verifier, and jurisdiction before applying a threshold or economic term.

Build a document hierarchy: law and governing agreements first, then subscription documents, side letters, notices, administrator or transfer-agent records, financial statements, valuation materials, and platform displays. When sources conflict, determine which record controls and obtain a written correction rather than choosing the most favorable number.

Definitions matter. Investments, net worth, income, commitments, NAV, fair value, purchase price, amount sold, eligible shares, and distributable proceeds can each exclude items that a casual reading would include. Record the definition and evidence used for every material conclusion.

Translate the legal or reporting concept into investor cash. Include purchase price, funded and unfunded obligations, security class, preferences, dilution, fees, carry, taxes, reserves, transfer cost, settlement timing, and exit assumptions. Eligibility and process mechanics are separate from whether the resulting investment is attractively priced.

For valuation work, bridge the last reported mark to a current estimate using company performance, financing rounds, comparable companies, secondary bids, debt, liquidation preferences, option dilution, and time elapsed. For commitments or offering data, bridge opening amount, additions, calls or sales, cancellations, distributions, and ending balance.

Example: an SPV interest referencing $1 million of preferred shares may not be worth $1 million to its investor after a 12% secondary discount, 5% transfer and vehicle costs, accrued carry, and a long settlement. Conversely, a reported discount may be misleading if the quoted NAV is stale or represents a different security class.

Map every required action and dependency: notice, verification, consent, funding, waiver, allocation, proration, transfer documents, issuer or GP approval, ROFR, AML and tax review, ledger update, and cash settlement. Identify deadlines, discretion, cancellation rights, and which party bears market risk while the process is pending.

Review control over money and records. Escrow, administrator, transfer agent, custodian, auditor, broker, fund manager, and platform may each perform different functions. Confirm payment instructions independently and require final evidence that both cash and legal ownership changed as intended.

Stress missed funding, failed verification, oversubscription, proration, delayed consent, stale disclosure, valuation dispute, issuer withdrawal, buyer default, fund-level borrowing, and forced sale. The investment memo should state the remedy and likely recovery for each important failure—not merely that documents contain standard protections.

Before investing, obtain governing and offering documents, cap table or ownership evidence, financial information, valuation policy, fee schedule, conflicts disclosure, transfer restrictions, tax materials, service-provider identities, and the source documents supporting any eligibility or transaction representation.

After closing, monitor capital calls, distributions, NAV changes, financing rounds, security conversions, amendments, waivers, transfer windows, tender activity, fees, auditor or administrator changes, regulatory filings, and reconciliation exceptions. Distinguish realized cash, contractual commitments, accounting marks, and sponsor forecasts in every report.

Warning signs include inconsistent entity names, unexplained amendments, stale marks, undocumented verification, changing wire instructions, affiliated counterparties, missing ledger confirmation, fees calculated on disputed NAV, repeated settlement delays, and claims that a filing or investor threshold validates investment quality.