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Finance: What is a Lock Up Agreement? 3 Views


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Description:

What's a lock-up agreement? We think it has something to do with a shiv, but let's watch this video, just in case.

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Transcript

00:00

Finance allah shmoop what is ah lock up agreement Okay

00:07

You invested your dough in the original round of this

00:11

venture capital like investment or you're a founder whose entire

00:15

network lives in the form of stock in your hot

00:18

little new company Dot com you sold a portion of

00:21

it to the public earlier in your aipo raising a

00:25

big fat pot of money for you to go spend

00:28

opening new sales channels in china Uzbekistanian and somalia Yeah

00:32

good luck with that So now you're desperate to sell

00:35

some percentage of your holdings You've been dying to buy

00:38

that new tesla suv with the gullwing doors and you

00:41

know self make upping feature But you can't buy it

00:44

Why Well because your locked up and it's nothing prunes

00:49

will solve You signed a contractual agreement when you did

00:52

the original handshake with the investment bankers who were taking

00:56

you public You agreed that you would follow what are

00:59

called the one forty four a laws which restrict insiders

01:03

from selling any shares until to quarters and change have

01:07

fast during which a company is newly public Well why

01:11

do these laws even exist Well because a bunch of

01:13

scummy city slickers screwed over a bunch of uneducated farmers

01:17

in a bygone era such that the government had to

01:20

step in and make everyone play fair and square like

01:24

they dumped their shares the minute the company was public

01:27

on unsuspecting farmers who paid eighty seven dollars share only

01:30

to watch the stock trade down to eighty seven cents

01:32

a share two years later or even less Yeah that

01:35

happened right Well the general idea here is that if

01:38

a company can show professionally audited public Numbers 4:6 months

01:43

and change of being a public company well then they

01:45

wouldn't have been able to hide something deep dark fraud

01:49

like elements about their business that it was all kind

01:52

of a shell game against those poor farmers Well everyone

01:55

would be playing then on the same level playing field

01:58

and it would be fair upon public notice for insiders

02:02

to sell some limited percentage of their total holdings and

02:06

get liquid well in practice all kinds of restrictions exist

02:10

against freeform insider selling so a maximum total percentage owned

02:15

per month recorder per year is out there their maximum

02:18

ceilings against which total volume can't be certain passed in

02:23

a given day like if a million shares trade in

02:25

a day you can't sell more than five percent or

02:28

fifty thousand shares in a day And a bunch of

02:30

other restrictions exist that are designed to mitigate the spread

02:34

between information held by insiders and information held by outsiders 00:02:40.645 --> [endTime] Yeah other outsiders

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