Final answer:
The lock-up period is the time that pre-IPO investors and other early-stage investors are restricted from selling their securities. It is typically a few months long and aims to ensure stability in the stock price and protect the interests of the company and its existing shareholders.
Step-by-step explanation:
The lock-up period refers to the time period during which pre-IPO investors, private placement buyers, and other early-stage investors are restricted from selling their securities. This period is typically put in place to ensure stability in the stock price and protect the interests of the company and its existing shareholders.
The lock-up period can vary depending on the company and the terms of the specific securities issued. It is usually a few months long, ranging from 90 to 180 days. After the lock-up period ends, these investors are allowed to sell their securities on the open market.
For example, let's say a company has an IPO and its lock-up period is set at 180 days. During this time, the pre-IPO investors and other early-stage investors cannot sell their shares. Once the lock-up period is over, they are free to sell their securities if they choose to do so.