Coinbase Listing and Lock-Up Periods (or the lack thereof)

Coinbase is going public on April 14th 2021. The company has filed their S-1 prospectus with the SEC on the 25th of February 2021.

Unlike a regular IPO, Coinbase is choosing a direct listing on NASDAQ, instead of having it facilitated by investment banks.

In an I-bank driven process, a bank consortium will try to secure a minimum amount of money raised by helping to tell the company's story to their clients (institutions, funds, hedge-funds, high-net-worth clients, ...). Because investment banks and clients want to keep a profitable relationship, the banks usually negotiate a lock-up period for the old shareholders, so they don't suddenly flood the market with shares and tank the price. This is where the listing pop comes from. This process is done to either raise cash for old shareholders or the company or a mix of both.

In the case of a direct listing, shares start trading on an exchange. The initial price is set by the market itself. This is done when the company doesn't need cash to grow and the old shareholders have no immediate need to liquidate their holdings.

It is still interesting for new shareholders to know how many shares could potentially be dunked on them. Let's check out what the S-1 says about "lock-up".

Page 9:
"None of our stockholders are party to any contractual lock-up agreement or other contractual restrictions on transfer. Following our listing, the sales or distribution of substantial amounts of our Class A common stock, or the perception that such sales or distributions might occur, could cause the market price of our Class A common stock to decline."
Page 65: "None of our registered stockholders or other existing stockholders have entered into contractual lock-up agreements or other contractual restrictions on transfer. In an underwritten initial public offering, it is customary for an issuer’s officers, directors, and most or all of its other stockholders to enter into a 180-day contractual lock-up arrangement with the underwriters to help promote orderly trading immediately after such initial public offering. Consequently, any of our stockholders, including our directors and officers who own our common stock and other significant stockholders, may sell any or all of their shares of Class A common stock, including shares of Class B common stock convertible into Class A common stock at the time of sale (subject to any restrictions under applicable law), including immediately upon listing. If such sales were to occur in a significant volume in a short period of time, it may result in an oversupply of our Class A common stock in the market, which could adversely impact the price of our Class A common stock. See also “—None of our stockholders are party to any contractual lock-up agreement or other contractual restrictions on transfer. Following our listing, the sales or distribution of substantial amounts of our Class A common stock, or the perception that such sales or distributions might occur, could cause the market price of our Class A common stock to decline.”

This is only a limited aspect of the listing, and the current stockholders are probably more interested in getting liquidity of their holdings instead of cashing out as fast as possible.

It is interesting because it is a high profile offering and deviates significantly from what most participants in STONK offerings are used to.

Have fun browsing that prospectus for even more nuggets:

https://www.sec.gov/Archives/edgar/data/1679788/000162828021003168/coinbaseglobalincs-1.htm

P.S. Satoshi Nakamoto's Bitcoin wallet is listed among the interested parties of this filing

P.P.S. unlike popular memes, STONKS don't always go up ;)

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