Lyft’s stock fell for a second successive day, putting it well below its IPO price of $72. The shares fell as low as $66.63 before recovering and closing down just four cents at $68.97. And according to the New York Post, the cause is short-selling—by early Lyft investors. The Post reported that early investors have found a way around the lock-up restrictions which prevent them selling their shares for six months. They’re using short-selling products being marketed by banks, including Morgan Stanley, to hedge their positions, according to the Post. These early investors, who have made enormous gains at around the current price, want to lock in those gains—as we noted last week. If they wait six months, the stock could be meaningfully lower.
The bigger significance is the potential that early investors in other private tech companies could use this approach to get around lock-ups. Without the details of what Lyft investors did, it’s not clear whether other people can repeat the trick. But this is sure to be a matter of great interest to all private tech companies contemplating going public anytime soon.