Musk locked out of SpaceX shares; select investors can sell

SpaceX began trading on Nasdaq on June 11 at $135 per share in what the company described as the largest IPO in history. Under the offering terms, Elon Musk and certain insiders are subject to a one-year lockup that prevents any sales.

Separately, SpaceX reserved 5% of the offering for a direct share program (DSP). Participants in the DSP were chosen at the discretion of executive officers and face no lockup restrictions, allowing them to sell shares from the first day of trading.

Investors who did not receive DSP allocations have a staggered release of holdings. Twenty percent of their shares will be eligible after the company’s first earnings report. The remaining holdings are released in 7% tranches at 70, 90, 105, 120 and 135 days after the offering.

At least one hedge fund that received a DSP allocation is preparing to sell its stake as soon as it is allowed, according to market reports. Early investors who were not included in the DSP will have limited liquidity until their scheduled release dates.

Chad Anderson, founder of Space Capital and an early investor in SpaceX, said, “We’ve been invested for almost ten years, it’s our business to return capital to investors.”

Market analysts warned that the combination of unrestricted DSP selling and staggered releases for other holders could create significant selling pressure in the days and weeks after the IPO. Analysts also noted some valuation estimates that place the company’s fair value below the IPO price.

The IPO arrived in a week that includes U.S. inflation data and market pricing for a potential Federal Reserve rate increase, factors that can increase short-term market volatility. Trading in the coming days will show how much immediate selling by selected investors influences the share price compared with restraint by longer-term holders.