Anthropic’s highly anticipated initial public offering (IPO) could feature an unusual approach to insider shares. Rather than the traditional 180-day lockup period for shares, a recent report suggests that Anthropic is considering allowing insiders to sell a portion of their shares during the IPO and subjecting the remaining shares to a lockup period well beyond 180 days.
If the report is true, these IPO criteria stand in contrast to Space Exploration Technologies‘ recent IPO, which released locked-up shares in tranches at designated times up to a year after the IPO. Although Anthropic’s reported plan is not conventional as it relates to managing the sale of insider shares, it might be a plan the tech industry needs to consider. Here’s why.
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Anthropic and its future stock
Anthropic’s Claude AI engine has emerged as an industry leader. To that end, a recent fundraising round valued the company at $965 billion, and it has targeted a $2 trillion valuation with the IPO, making an increasing number of investors anxious to own a stake in Anthropic stock. This means Anthropic could outdo SpaceX with its IPO.
The original plan was to follow a standard 180-day lockup period. Under this plan, founders, employees, and venture capitalists cannot trade for a set number of days. Laws do not require such a limitation, but it has become a standard provision in such contracts.
However, according to The Information, Anthropic has considered floating a plan in which these insiders could trade a portion of their shares as soon as the stock goes public, while the remaining shares would remain subject to a lockup period of well over 180 days and likely not being free to sell until mid-2027.
How the proposed approach might improve tech IPOs
Investors should know that lockup expirations do not affect the amount of shares in a company. Instead, a lockup expiration often amounts to the execution of a delayed sell order. The shares don’t have to be sold, but if they are, it creates a rising number of sellers, which could temporarily put downward pressure on the share price.
Stocks tend to surge well above their introductory price on the IPO day, at least temporarily, because high demand runs into limited supply. Thus, allowing a portion of shares to be sold immediately could allow insiders to profit from some of that post-IPO euphoria. Conversely, having more shares actively trading could mitigate some of the stock price increases that tend to accompany an IPO, thereby reducing a stock’s volatility during that period.
As for the shares locked up longer than the 180 days, growth and market sentiment would likely be the primary influences on the stock price by that time.
Admittedly, selling pressure will almost certainly increase during a lockup expiration regardless of its timing. Still, having fewer shares come out of lockup could reduce selling, thus helping to reduce stock volatility again.
Making sense of Anthropic’s plan
Anthropic’s plan shifts lockup expirations rather than avoiding them. Nonetheless, having some of the selling occur during the post-IPO period could profit insiders while reducing the tech stock‘s volatility and setting a precedent for a smoother IPO process.
As previously mentioned, companies like Anthropic have no obligation to follow the standard practice of 180-day lockups. Also, investors can expect lockup expirations to always increase the number of sellers at expiration.
However, moving some of that selling to the post-IPO period could reduce volatility and allow insiders to profit from the likely euphoria. Since that could also reduce the significance of the later lockup event, shifting to that approach could benefit tech insiders while fostering a less volatile trading environment.
