YouTube and Lockups

This Google stock registration statement is being talked about today. It lists many (all?) of the YouTube stock holders and how many shares of resulting Google stock they wish to register. There’s a total of 4,204,215 shares listed, and the 3 YouTube founders are registering a combined 1,525,617 shares, or 36% of the total. This roughly matches what has been reported in the past as their percentage of the company, which was founded almost exactly 2 years ago.
Typically, when a startup first raises venture capital, the founders agree to subject part of their stock to a repurchase agreement. The amount of stock that can be repurchased by the company decreases over a period of time (3 to 5 years, typically). This means that if a founder were to leave after a couple months, they’d end up losing some chunk of their stock in the company. Investors do this as one way of protecting their investment.
What I haven’t seen mentioned anywhere is whether the YouTube founders (at least the two still working at YouTube/Google) were subject to such an agreement, and if so, did it carry over after the acquisition by Google. My guess is that the answer is yes to both statements. Assuming a 4 year vest, they would only be able to sell about half their holdings right now. Which of course is not bad, any way you look at it. But budding entrepreneurs should keep in mind that when you hear about these exits, what’s not often mentioned are the continuing lockups, and the resulting risks (what if Google’s stock fell to $10/share before they had a chance to sell any more stock, for example?).



  1. Its worth noting that if an exit occurs through a purchase by a public company, such as google, the entrepreneurs could use long term LEAP options to collar the price of the shares thus hedging themselves against any drop in share price or gain in share price over the lock up period.

  2. Good point, Ben. Although there are situations where one is prevented from using options to hedge. When Yahoo acquired eGroups, for example, I was considered an affiliate. Therefore, I was restricted from selling any stock until a couple days after the next quarterly earnings were reported (a little over a month after the acquisition closed). According to my lawyers, I was not allowed to hedge my stock during that time.

  3. Really….thats very interesting. I wonder if people in that situation do it on the sly anyway..using a parent or spouse.