Lock-in agreements in venture capital-backed UK IPOs

Lock-in agreements in venture capital-backed UK IPOs

Susanne Espenlaub, Arif Khurshed, Luc Renneboog

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Date posted :

September 01 2003

Last revised :

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  • Initial Public Offerings • 
  • lock-in agreements • 
  • high-tech firms • 
  • venture capital

This paper examines the impact of venture-capital (VC) backing on the characteristics of voluntary lock-in agreements entered into by the existing shareholders of UK IPOs, and on the abnormal returns around the expiry of the directors' lock-in agreements. Overall, we find that venture-capital backing acts as a complement rather than a substitute for lock-in contracts.

We also examine the share-price performance of IPOs with and without VC backing around the time of the expiry of the lock-in agreements. We find that the cumulative average abnormal returns for the VC-backed stocks are lower for most of the short windows around the expiry date. We also examine some UK companies in more detail. Different motivations for the lock-in agreements are uncovered such as the founder's commitment not to exit the company (as he did in an earlier venture which subsequently failed) in one case, and the poor pre-IPO earnings performance in another case.


Real name:
Susanne Espenlaub
Real name:
Arif Khurshed