What Is a Directed Share Program?

Directed Share Programs, Explained in 5 Minutes

A directed share program is when a company reserves a portion of its IPO shares for employees, family members, friends, and customers at the IPO price.
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A company becoming publicly traded makes its shares available to the general public through an initial public offering (IPO). With a directed share program, the company can reserve a portion of those shares for employees, family members, friends, and customers at the IPO price. Firms often use a directed share program to inspire loyalty among employees by giving them a stake in the company’s success.

Learn more about how a directed share program works. We’ll cover how you can invest in one if you’re given the opportunity as well as some factors to consider.

Definition and Examples of a Directed Share Program

When a company holds an initial public offering (IPO), its shares become available to the public for purchase, typically on a stock exchange. A directed share program allows the company to set aside part of those shares for employees, family, friends, and other stakeholders. Some companies also allow customers and vendors to invest in their directed share program.

Typically, a directed share program sets aside anywhere from 2% to 10% of shares for these company insiders. You also may hear a directed share program referred to as a:

  • Directed share plan
  • DSP
  • Friends and family list

For example, Airbnb, which went public in December 2020, offered a directed share program to hosts that allowed some of them to buy shares at the IPO price of $68. The company reserved up to 3.5 million shares, or 7% of its initial offering, for hosts. The program was available only to hosts who resided in the U.S. and who hosted guests in 2019 or 2020.

When ride-hailing company Uber prepared to go public in 2019, it set aside up to 5.4 million shares for drivers for its directed share program, representing 3% of its common stock. Eligible drivers were allowed to purchase shares for the IPO price of $45. The DSP was only available to drivers who were in good standing and had made at least 2,500 trips. At least one of those trips had to have been made on or before April 7, 2019.

Directed share programs were especially common in the tech sector leading up to the bursting of the dot-com bubble in early 2000. Since then, the practice has drawn more scrutiny from regulators. In 2003, a New York Stock Exchange (NYSE)/National Association of Securities Dealers (NASD) advisory committee warned that misuse or overuse of a DSP could “compromise the IPO process.”

One reason directed share programs are sometimes controversial is that they can pump up the value of the IPO company. For example, a yet-to-be-profitable startup that’s preparing to go public could legally offer DSP shares to executives of a well-established company as it negotiates a long-term contract. The market may react positively to news of the long-term contract, which could send share prices soaring after its IPO.


When you invest in an IPO stock, you may face a lock-up period during which you can’t sell your shares. A typical lock-up period ranges up to 180 days. Though lock-up periods aren’t required by the U.S. Securities and Exchange Commission (SEC), some companies implement them to stabilize their share prices and to avoid violating insider trading rules.

How a Directed Share Program Works

When a company prepares to go public, it usually works with a financial institution that serves as an underwriter. The underwriting institution ensures regulatory compliance and often helps the company determine its IPO share price. During this process, the company may ask its underwriter to reserve a certain portion of its shares for key stakeholders, along with family and friends, through a directed share program. 

You can only participate in a directed share program if you’re invited to do so. The company that’s making the offering decides who will be eligible. If you’re invited to participate in a DSP, you can’t transfer your eligibility to someone else.

If you decide to buy shares through a directed share program, you’ll place what’s called a conditional buy order. A conditional buy order is similar to a regular buy order that you’d place when purchasing existing shares, only it won’t be effective until the SEC declares the company’s registration effective. You’ll indicate the number of shares you wish to purchase, although placing a conditional buy order doesn’t guarantee you’ll receive shares.

You’re allowed to modify your conditional order up until your shares are allocated. Once your conditional buy order is accepted, it becomes a buy order, and shares will be allocated to your account. Once shares are allocated, you can’t change your order and you’re obligated to purchase the shares.


Being invited to participate in a directed share program doesn’t necessarily mean you’ll receive all the shares you've requested. You could receive all, some, or none of your requested shares, depending on demand for them and the issuing company’s rules.

What It Means for Individual Investors

A directed share program can present a rare opportunity for individuals to invest in a company’s IPO. Often in such offerings, IPO shares are only available to key executives, high-net-worth individuals, and institutional investors.

However, it’s important to keep in mind that investing in any IPO is risky. It’s vital that you read the company’s investment prospectus, particularly the section that describes the risk factors. An IPO stock’s price can drop significantly after the initial offering, so investing via a directed share program could cause you to lose money.

If you opt to invest in this way, it’s important to maintain a diversified portfolio. Financial planners often recommend limiting your stake in any one company to about 5% of your overall investments. This is especially important if you’re able to invest in a DSP because you’re an employee of the issuing company. If the company performs poorly, both your income and your investment portfolio are at risk.

Key Takeaways

  • A directed share program allows employees (and sometimes family, close friends, and customers) to invest in a company at its IPO price.
  • A typical directed share program reserves between 2% and 10% of IPO shares for company insiders.
  • Participation in a directed share program is by invitation only and can’t be transferred to another investor.
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  1. Alan L. Beller. "U.S. Regulation of the International Securities and Derivatives Markets, 12th Edition, " Page 3-115. Wolters Kluwer Law & Business, 2017. Accessed Jan. 10, 2022.

  2. U.S. Securities and Exchange Commission. "Airbnb Class A Common Stock." Accessed Jan. 10, 2022.

  3. U.S. Securities and Exchange Commission. "Form S-1 Registration Statement, Uber Technologies Inc." Accessed Jan. 10, 2022.

  4. Charles J. Johnson, Joseph McLaughlin, Eric S. Haueter. "Corporate Finance and the Securities Laws." Page 3-31. Wolters Kluwer, 2015. Accessed Jan. 10, 2022.

  5. Fidelity. “Sunrun - Frequently Asked Questions,” Page 1. Accessed Jan. 10, 2022.

  6. Robinhood. “What’s a Directed Share Program?” Accessed Jan. 10, 2022.

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