SpaceX's Starship 39 rocket launches on May 22 during a test flight in Texas.

Ronaldo Schemidt/Getty Images

The largest planned IPO on record will not have the typical 180-day lockup for existing investors. SpaceX has built a tiered, rolling release schedule designed to meter -- not block -- sales by its longest-tenured shareholders.

While the approach is mainly aimed at tempering stock price volatility, staggered lockups have not always kept a hot, newly listed stock's price high. Facebook's 2012 IPO's lockup, for example, ran 91 to 181 days, by the end of which shares had fallen more than 40% off their offering price (they went on to recover).

Moreover, SpaceX will be the first mega-IPO to qualify for the Nasdaq 100's new fast-entry rule, letting it join the index after only 15 days of trading. This will force passive index funds tracking the benchmark to buy shares, and experts anticipate it will put even more pressure on SpaceX's stock price.

"It's going to attract larger institutional investors, as well as index funds, sooner than it would of any IPO of this nature," said Jawad Hussain, senior managing partner of advisory firm Highspring. "Well, I can't say 'this nature' because no such things exist in the market ... because of the size and sheer scale of this, they really need all of these accelerants for the stock to perform."

As outlined in the company's IPO prospectus, SpaceX investors will be able to sell up to 20% of their stock starting on the second full day of trading after the company releases its first earnings report after the end of Q2.

There's also a performance-based trigger: Investors can sell an additional 10% if the stock trades 30% above its IPO price for at least five of the 10 trading days after the earnings are released.

"I don't know if any of the largest [investors] would want to sell. The fact that they're allowing up to 20% gives them some liquidity," said Mike Alves, founder of VIDA Vision Fund and an investor in SpaceX and xAI. "That said, they have been long-term investors, and there's a huge gain to that position, so I'm sure they want to take some off the table."

But there's a layered lockup structure in place, too, irrespective of where the stock is trading. Investors can sell in increments of 7% after 70, 90, 105, 120 and 135 days following the public listing. An additional 28% unlocks after SpaceX reports Q3 earnings. The remainder unlocks at 180 days post-IPO.

As for Elon Musk -- who controls 85.1% of voting power in his company -- he's sitting out the sale for quite a bit. He and unnamed "certain significant investors" have agreed to a 366-day lockup period, per the IPO filing.

This article originally appeared on PitchBook News

SpaceX's tiered IPO lockup aims to build a ladder, not a cliff