Question: Dan you say that only a portion of the shares are sold at IPO. Does this portion include all the shares that have been awarded to all the employees? Or just the top management group?

Dan Walter's answer

Great question. The shares sold at the time of the IPO are usually reserved to those held by outside investors, founders and a portion of what is held by executives (most of their shares are required to be held after the IPO). Sometimes former employees who hold actual shares will be allowed to participate.

Shares must be registered with the SEC (or eligible for an exemption to registration) in order to be sold after the IPO. Most of the shares offered are registered using a S-1 filing. Shares from employee plans are registered using a S-8 filing (a bit less onerous). Shares may also be subject to rules like 144 (defines post purchase holding periods) or 701 (an exemption from registration for certain pre-IPO shares associated with employee stock plans) that cover the issuance of shares that are issued prior to the SEC filings (pre-IPO shares).

The shares that are awarded to employees through approved employee stock plans are filed using an S-8. ( properly registered ior exempted they can be traded publicly.

In most cases shares that are not allowed to participate in the actual IPO offering are subject to a 180 day, post-IPO lock up period. This adds additional risk and mystery to the value of employee equity. Will the IPO price be the highest price for years? Will the IPO spark a feeding frenzy that drives the price higher and higher? Allowing the employee to reap greater gains down the road> Will the stock price lep for a few days or a week then drop to a level lower that than IPO price?

Like the end of an old Batman episode, there are as many questions at the time of IPO as there are answers. A smart person once explained it this way. All the work to get to the IPO is like and athlete or student working to be a star in college. Once they are hired or drafted the REAL work begins.

The Secret Life of Equity Compensation at IPO

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