Supply and demand around lockup expiry
| Stage | Supply dynamic | Demand dynamic |
|---|---|---|
| Pre-lockup (months 0-6) | Limited free float; underwriter price support | IPO participants holding; analysts initiating coverage |
| Lockup approach (month 6, day -30) | Anticipatory selling by short-sellers and discretionary holders | Bargain hunters waiting |
| Lockup expiry (month 6, day 0-60) | Insider sales: VCs, founders, employees realizing losses | Limited; bargain-hunters waiting for capitulation |
| Post-lockup (months 6-12) | Insider selling exhausts; remaining holders are committed | Value investors begin coverage; analyst sentiment shifts |
| 12+ months out | Normal float; corporate action (M&A, take-private) possible | Normalized equity behavior; index inclusion possible |
Why the bottom forms after lockup expiry
Whether the business model still works
The single best filter for busted-IPO investing is whether the BUSINESS MODEL has structurally changed since IPO. A busted IPO of a growing SaaS company that just got valuation-compressed has different upside than a busted IPO of a meme-stock-era consumer brand whose unit economics never worked. Read the S-1 (sf-5), check the cohort tables, compare current revenue-growth rate to the IPO-era trajectory. If the business is fine and only the valuation was wrong, the busted IPO has clean upside. If the business is broken, no amount of selling exhaustion will rescue the price.
Plot the price around lockup expiry
Why most busted IPOs deserve their price
Most busted IPOs do NOT recover to IPO price. The empirical evidence (Ritter and Welch various; the 2024 SPAC retrospective studies) shows that 5-year post-IPO returns for the bottom decile of IPOs are typically -50% to -70% from IPO price. Survivorship bias makes the headline busted-IPO winners (Spotify, Pinterest in some periods) seem more representative than they are. Most busted IPOs deserve their price; the trade is identifying the minority where the business is fine and the price is wrong.
Busted IPOs in review
Busted IPOs trade meaningfully below offering price. The lockup-expiry window concentrates insider selling, typically producing the bottom 30-90 days post-expiry. The investable subset is busted IPOs where the business model still works; most busted IPOs deserve their reduced price. Pre-lockup short interest plus post-lockup analyst sentiment shift are the catalysts; survivorship bias is the main analytical trap.
Sit with the ideas.
A recent IPO that priced at $20 trades at $7 nine months after going public. Lockup expires in 30 days, releasing roughly 80% of shares from sale restriction. What is the most likely post-lockup price behavior?