The IPO is done. The celebration is over. Now comes the part that actually matters — turning your stock into a lasting, life-altering windfall, or passing over an important planning opportunity.
Once your company begins trading publicly, the dynamic shifts in ways that catch many employees off guard. Typically this manifests as a combination of emotion and urgency — a sudden impulse to act on goals and plans that were previously just ideas. Employees may find themselves saying "now that my company has gone public, I can finally…" — but the IPO marks the beginning of the process of converting highly appreciated stock into liquid cash, not the end of it.
This is no longer paper wealth. It is real money, subject to real market forces, real taxes, and real consequences for decisions made — or not made — in the months ahead. The 180-day lockup period is not a rest period. It is the planning period.
What the Lockup Actually Restricts — and Why It Exists
The lockup agreement prevents employees and early investors from selling shares for 180 days following the IPO. It exists for a specific reason: to protect the institutional investors who participated in the offering.
Investment banks underwrite IPOs and distribute shares to large institutional investors — the mutual funds, hedge funds, pension funds, and insurance companies whose reliable participation makes a deal successful. Those investors need confidence that the market won't be immediately flooded with selling pressure from employees and early backers who have been waiting years for liquidity. The lockup is the mechanism that provides that assurance. Without it, institutional investors would be far more cautious about participating in new offerings, resulting in IPOs taking longer to occur or pricing at lower valuations.
In cases where a deal is not fully subscribed — meaning there aren't enough buyers for all the shares being offered — the underwriting bank may be left holding shares it cannot sell. That is a scenario every party involved is highly motivated to avoid.
Understanding why the lockup exists matters because it reframes what the period is. It is not arbitrary. It is structural. And when it expires, the selling pressure it was designed to contain is released — which is itself a market event worth planning around.
Liquidity, Valuation, and Taxes — In That Order
Before getting into the mechanics, it helps to establish the right priority order for post-IPO planning. Most employees focus first on taxes, as many people perceive them as an acute source of financial pain. Taxes are actually third.
Liquidity comes first — this is because it is the one factor that causes serious problems for the other two when there is an issue. Without sufficient liquidity (typically in light of an unexpectedly large tax bill), employees find themselves making knowingly non-economic choices: selling shares at depressed prices, realizing short-term gains they didn't intend, or cashing out a 401k in spite of resulting taxes and penalties — not because it makes financial sense, but because there is no other option. This is the most painful outcome of all — and it is almost entirely avoidable with proper planning.
Valuation comes second — what your shares are actually worth in a market that is still discovering the right price for your company. Employees — in particular those with stock options — often assume the stock price will be the same or higher by the time they qualify for reduced capital gains tax rates. This assumption tends to come from one of two places: genuine optimism about the company's prospects, which is understandable given what it took to get here, or a simplifying assumption that allows them to focus on a single variable — taxes — while setting aside the harder question of what the stock will actually be worth. Neither is a plan. A doctor evaluating a patient doesn't focus on the most visible symptom and ignore the others. The same logic applies here. What employees actually get is a brief trading window — after outside investors have already reacted to quarterly earnings.
During that window, unrelated economic events may overwhelm company fundamentals entirely. And if conditions make a particular quarter unappealing to act, the next opportunity is three months away — when conditions may or may not cooperate. This is not a one-time decision. It is a decision that requires careful evaluation every single quarter, and taking no action is itself a choice — one that deserves as much deliberate consideration as acting.
Taxes come third — consequential, but ultimately a function of the first two. Taxes are an unpleasant side effect of making money, which is itself a good thing, and they are always a fraction of sale proceeds.
Getting the order wrong as it relates to the competing priorities of liquidity, valuation, and reducing taxes is itself a planning error.
The Tax Picture Is More Complicated Than It Looks
The timing of option exercises is where many employees encounter their most consequential and least expected financial surprise. Employees who wait until the IPO to exercise options are doing so at or near an all-time high valuation for the company. A large exercise at that point generates a substantial tax liability — and without sufficient liquidity on hand to cover it, what follows can be a forced sale of shares at whatever price the market offers, driven entirely by the need to produce cash before an April tax deadline. One important and frequently misunderstood point: filing an extension on your tax return does not delay the date on which any outstanding tax liability is due. The payment is still owed by the original deadline.
Pro-tip: The signal that an unexpected tax bill may be arriving is when an employee begins taking action with their stock options — such as exercising — without knowing the exact tax liability that will result. Exercising stock options cannot be viewed as a potentially taxable event in isolation — they are one more item added to the entirety of your tax return. Avoiding a tax surprise requires knowing the exact amount due, whether quarterly estimated payments are required, and having sufficient cash on hand to cover the bill without selling employer stock.
Forced stock sales conducted to cover an unexpected tax bill are not a hypothetical — they occur with real frequency, and veterans of the pre-IPO world are often aware of a handful of colleagues who have experienced one. All it takes for this scenario to unfold is the combination of a large unexpected tax bill and a lack of (otherwise excessive) liquidity.
Pro-tip: There are two key indicators that someone has earned an IPO windfall — when their stock has reached a value that is multiples in size of their annual compensation, and when the cost to fully exercise their stock options is less than 10% of its current fair market value. Consider an employee making $300K in annual compensation whose stock options have a market value of $1M, of which the exercise cost is $50K. This means there is a $950K unrealized gain that will be taxable upon sale, and even a fraction of the grant being exercised is likely to trigger a significant tax bill without conducting any sales at all.
For employees with dual-trigger RSUs — where vesting requires both employee tenure and a liquidity event — a fully vested grant earned over a typical period of four years is delivered on a single day: the IPO date. The entire value of that grant becomes ordinary income in one tax year. For executives and well-compensated mid-level employees alike, this can easily produce a tax bill that rivals or exceeds an entire year's salary, concentrated in a single filing year.
Pro-tip: Dual-trigger RSUs tend to be prevalent among employees who joined a private company during the last year or two before an IPO. Their purpose is to allow employees to earn stock without the complexities related to stock options, while deferring taxes until the time — and tax year — when the company actually goes public. Employees have no control over the initial point of taxation of RSUs — that occurs when all vesting conditions are achieved.
Concentration Risk Is Real — But Valuation Risk Is the Bigger Problem
Most people with significant employer stock understand concentration risk in the abstract. What they tend to underestimate is valuation risk specific to newly public companies.
A large stock position in a large, stable, mature public company carries concentration risk but comparatively modest fluctuation in price. A newly public company is a different situation entirely. IPO stocks are among the most volatile securities in public markets, routinely experiencing swings of 20%, 30%, or more in their first one to two years of trading — driven not just by company-specific developments but by broader market sentiment.
The question is not just whether your wealth is concentrated in one company. The question is whether it is concentrated in one company whose stock price is unlikely to remain at the same level for an extended period of time — and subject to forces that have nothing to do with how well the business is actually performing.
Pro-tip: If you would be uncomfortable owning this much of a single stock at a company where you did not work, you have too much. How much to reduce, and when, depends on the totality of your household situation — personal, familial, and financial — not on what colleagues are doing.
Why the Market Always Gets What It Wants — and What That Means for You
This is a dynamic that surprises employees consistently after an IPO, even for several consecutive quarters, and it is worth stating plainly.
People often say the stock market gets what it wants — and that can feel unfair, or even arbitrary. But here is the reality: the market always gets what it wants, because the movement in price of any stock is the collective result of actions taken by every participant — every trade reflects the aggregate judgment of buyers and sellers at that moment.
Once your company is public, its stock price is driven by fund managers, analysts, and traders making decisions based on quarterly earnings and company-specific news, as well as macro conditions, overall investor sentiment, and economic policy decisions that have no direct connection to what is happening inside your company. Being an employee gives you deep knowledge of the business, but it does not provide insight into the external forces that move the stock.
Pro-tip: Sometimes a stock can drop significantly after earnings are released, even when all internal targets have been comfortably achieved, causing employees to be understandably frustrated. Here's why this happens — management sets expectations they believe they can reliably beat, and investors set their own expectations that are generally directionally consistent with management guidance, but larger in magnitude. Put simply, stock prices move on surprise, or disagreement.
The 2022 Market and What It Should Tell You
Think back to where you were professionally in 2022. Think about colleagues, former coworkers, or people in your network who went through an IPO in 2020 or 2021 — perhaps you did yourself.
Now go look at a stock chart for any of those companies.
What you will likely see is a pattern: a spike at or shortly after IPO, followed by a prolonged decline that in many cases lasted the better part of two years. The 2022 US stock market downturn, driven by inflation levels not seen in four decades, was not a sharp crash followed by a quick recovery. It was a slow, grinding decline over the course of an entire year, followed by a full year of recovery, even for mature companies.
For employees holding concentrated positions during that period, watching a stock price crater even when their company was doing well operationally, two years is a long time. Long enough to delay major financial decisions. Long enough to miss the recovery entirely by making a decision at the wrong moment out of frustration or fear. This returns to an earlier point — knowing why a stock price has moved, whether company-specific or not, is key to understanding what to read from it.
Pro-tip: This is not a theoretical risk. Stock markets encounter a meaningful obstacle for at least some amount of time almost every single year — and in the six years between 2019 and 2025, every one of the following occurred: a once-in-a-century global pandemic, inflation levels not seen in four decades, the most aggressive interest rate increases in modern US history, a recession, tariffs reaching levels unseen since the Great Depression, and multiple global conflicts. You need a plan, and equally important, that plan will be adjusted regularly.
What an IPO Windfall Actually Represents
An IPO windfall is an unexpectedly large amount of compensation, and the goal is to use it to meaningfully improve your financial situation in a permanent way.
A windfall has occurred when the value of your stock greatly exceeds what you would normally expect to receive over the period it was earned.
Most people who build careers at early-stage companies go through multiple opportunities before one produces a real financial outcome. The vesting period on your grant often says four years. But the period over which this windfall was truly earned includes every opportunity before this one that didn't work out. That context matters when deciding what to do with it.
Most people never experience one at all.
The right approach to handling employer stock is different for every household, and the primary driver of that difference is what the money is actually for.
The lockup expiration date is on the calendar. The planning window is finite. Using it intentionally is how you capture what the IPO made possible.
How will you use your windfall to permanently improve your financial life?
If you'd like to explore whether ongoing financial planning and investment management make sense for your situation, you can schedule an intro call here:
Common Questions
What is the 180-day lockup period after an IPO and why does it exist?
The lockup exists primarily to protect the institutional investors who purchased shares in the IPO offering. By preventing employees and early investors from selling for 180 days, it delays the inevitable selling pressure that follows when people who have waited years for liquidity finally have the ability to exit — giving IPO investors the opportunity to realize the near-term return they intended to achieve by participating in the deal, before that supply hits the market.
How are equity compensation awards taxed after a company goes public?
Employees approaching an IPO more commonly hold stock options, though RSUs with dual-trigger vesting — where the IPO itself is one of the vesting conditions — are also issued pre-IPO. Regardless of the instrument, the IPO can compress years of earned compensation into a single tax year, producing a bill that surprises many employees. Filing a tax extension does not delay the payment deadline for taxes already owed — and unpaid balances accrue penalties monthly, making early planning essential.
Why do IPO stocks tend to be so volatile in the first year or two?
Newly public companies have limited trading history, and valuations that are still being discovered and understood by the market. While they are subject to the same macro and sector-level forces as all public stocks — meaning prices can move significantly based on factors entirely unrelated to company performance — they tend to be highly sensitive to changes in management guidance, and prone to earnings surprises.
This blog was written by Jeremy Bohne, Principal & Founder of Paceline Wealth Management. Paceline is a fee-only investment advisor serving clients in the Boston area, and on a remote basis throughout the country. Paceline specializes in helping tech and biotech executives, business owners, physicians, and those seeking financial planning services.