Palantir Technologies is planning an unusual feature for its direct listing next month: a partial lockup.
The data analysis software firm told investors that they would have to hold onto most of their shares for several months after the company lists its stock publicly, two people familiar with the matter said. Investors would still be able to sell some of their shares immediately—about 20%— one of the people said.
That’s a big shift from how direct listings have been arranged in the past and removes one of the key selling points for investors in a company going public. Traditional initial public offerings, where a company sells new shares to raise money, lock up employees and other investors for usually six months. That prevents too much stock coming onto the market at the one time, which could depress the price, but it also means early investors and employees have to wait months to sell. In contrast, Slack and Spotify, which went public via direct listing, each allowed investors to sell all of their shares on the first day of trading.
One of the main reasons for pursuing a direct listing is to allow early investors to sell their shares quickly. Palantir’s move could anger its investors, who include Tiger Global and GSV, and suggests the company wants to avoid too much of a sell off in the stock in its early weeks of trading. The company has been privately held since 2003, creating significant pent-up demand among its shareholders to sell their shares on the open market.
Palantir has had one of the most active secondary markets of any private company. Institutional investors and pension funds have bought up Palantir shares in recent years, investors and secondary brokers said.
Rick Kline, co-chair of the capital markets practice at Goodwin Procter LLP, said locking up at least some existing shares made sense. He added that the company would have to disclose to regulators that it was doing so. But whether companies lock up shares is a question of standards rather than legal requirements, he said.
Without a lockup, “if the stock price is high enough, it could end up being a race to the door,” said Kline, who was Slack’s lawyer for its direct listing last year, but isn’t involved in the Palantir deal. “Something between no lockup and an all-share lockup could make a lot of sense" in a direct listing.
One question the lockup raises is whether there will be a limited amount of shares available to trade. Palantir said in a July filing with the U.S. Securities and Exchange Commission that it was in the process of raising $961 million in equity. It is possible those shares will be available to trade, in addition to the 20% or so of existing investors’ stakes.
A Palantir spokesperson didn’t immediately respond to a request for comment. Bloomberg earlier reported the news.