Lockup escrow is third-party custody of shares or cash while a lock-up, earn-out, or indemnity period runs its course.

How it works

In M&A, part of purchase price may sit in escrow for 12 to 24 months covering breach of reps and warranties. In IPOs, escrow agents rarely hold public stock — lock-ups are contractual — but SPACs and some direct listings used escrow for sponsor shares. Token deals use smart-contract escrows analogously.

Release triggers are date-based, milestone-based, or tied to claims resolution.

Why it matters

• Founders: Escrowed earn-out is not cash until released — plan taxes when released, not when deal announces.
• Investors: Escrow size and survival periods are negotiation points in sale processes affecting net DPI.

Escrow agents release funds per joint instructions or arbitration outcomes when parties disagree on indemnity claims. Survival periods for reps typically extend beyond escrow release — tail insurance may cover later claims.

Founders should track escrow balances in personal financial planning — not spend against holdbacks until released.

Common mistake

Assuming escrow always returns full amount. Indemnity claims can consume holdbacks.

Practical takeaway

Track escrow releases in your personal balance sheet as contingent assets — not guaranteed cash. Indemnity claims during escrow periods are common enough that founders should reserve mentally for holdbacks. Read survival periods for representations — claims can arrive after partial escrow release if warranties extend longer.

Related ideas

• Lock-Up
• Earn-out and indemnity holdback
• Escrow agent and release certificate