Since going public, Snap Inc. has faced increasing competition from Facebook Inc., a $2 billion-plus loss in its first earnings report and a sliding stock price. Now, the Snapchat parent company faces yet another challenge, and historical trends show investors have cause for concern.

Close to a billion shares could hit the market soon, as Snap SNAP, +5.92% early investors and employees are allowed to sell their stock thanks to lockup expirations. The release of new shares following an initial public offering typically pressures prices, but especially so for unprofitable, young, venture-backed companies that see many more shares released than in the actual IPO—all of which describes Snap.

An IPO lockup prevents large shareholders and employees and executives in the company from selling shares for a period of 90 to 180 days through a contractual obligation with the company. Several factors can make a stock more volatile as lockups expire, including its maturity when its goes public.

One factor working against the Snapchat-parent company is its history of venture-capital investment. Researchers who looked at initial public offerings executed in the decade after the dot-com bust found that companies with venture backing suffered more as lockups expire.

Don’t miss: Facebook and Snap may be sitting on a $16 billion opportunity

The academic study looked at IPO lockups from 2001 to 2011, and showed that all venture-backed companies studied suffered a decline in the five days surrounding a lockup expiration. Overall, the stocks fell 1.4% more than non-VC-backed companies, when controlling for firm factors and IPO specifics.

That average drop around the lockup may sound small, but it is the result of a large sample size, academics say. Overall, there’s wide variation in the range of stock movement around a lockup expiration.

“It’s actually not that rare to see a 15% drop because a lot of these recent IPOs are very volatile stocks,” said Jay Ritter, a professor at the University of Florida who studies IPOs.

How Snap makes money

A more mature company with a proven business model is more stable than a company like Snap, which really only began generating revenue in 2015. Snap’s performance is more of a question mark because it is unprofitable, most recently posting a $2.2 billion loss, and does not have a clear path to profitability.

“It’s easier when the valuation of the company is a little less disputable,” said Kathleen Smith, principal at Renaissance Capital, a manager of IPO-focused ETFs.

The number of shares hitting the market also matters. Based on past trends, Smith said Renaissance also tells its clients to pay attention if the number of shares being released is more than one times the deal size of the IPO, as it will likely have an impact on the stock.

“There will be pressure on the stock because investors will want to get out of the way,” she said.

Snap’s lockup expiration totals about six times its IPO float. Snap’s 150-day lockup expires around July 29, with the first trading day expected July 31. About 957 million shares could be sold in the expiration, while Snap sold 200 million shares in its IPO. However, 50 million of those shares were sold to Comcast’s Corp.’s CMCSA, +3.39% NBCUniversal with the provision of a 1-year lockup that will not expire until next year, according to Renaissance.

Companies with higher valuations generally sell a smaller percentage of shares in the IPO, Ritter said. Since the 1980s, the number of shares sold in the IPO have made up an average of 30.4% of the company’s post-issue shares, he found.

In August, some Snap investors have the option to demand registration rights, relating to 308 million shares of class A stock, meaning they can ask the company to register the shares, allowing them to sell. However, because this involves the cooperation of the company and takes time to register shares, this is not as concerning, Smith said.

S3 Partners

All of these factors have led to a lot of bets against Snap, as short interest has been high leading up to the expiration. According to S3 Partners, a financial-analytics firm that focuses on short-interest data, Snap short interest was $1.1 billion as of July 19, which is “very close” to the total amount of stock short sellers are able to borrow for the company at that point in time, said Ihor Dusaniwsky, head of research at S3 Partners.

These bets can actually work against short sellers if holders don’t sell or the stock does not decline as much as expected. For an example, go back to Yelp Inc.’s YELP, -1.64% post-IPO experience. The company, venture-backed by Bessemer Venture Partners, fit a similar profile to Snap, but saw its shares increase 22.5% the day of its Aug. 29, 2012, lockup expiration.

From IPO time: Snap boils down to a single question—Do you trust Evan Spiegel?

Some investors had been betting against Yelp’s stock, by selling it short, but then had to switch positions when shares failed to fall as much as expected in early trade. That meant these investors had to quickly buy back their stock, hoping to minimize their losses, thus driving the stock price up, a so-called short squeeze.

That scenario shows that investors could have a large influence in avoiding a dramatic fall around a lockup by simply holding on to their shares a little longer. But venture capital investors could have more immediate needs.

The overall trend of VC-backed companies falling more than others still stands in recent years, as venture capitalists still need to return capital to the limited partners who have made it possible for them to invest, said Laurie Krigman, one of the study's authors and an associate professor of finance at Babson College.

“The incentives are still the same,” Krigman said.

Krigman’s study, published in the Journal of Corporate Finance in 2015, looked at all IPOs between 2001 and 2011, but excluded holding companies, among others. She said the results of the research may be even more of an issue now than in the period studied, as private funding has ballooned in recent years and thus delayed the companies’ need to seek funding from the public market. The Wall Street Journal counts 167 private companies with valuations of $1 billon or more.

With companies staying private longer, VCs are holding on to their investments longer and therefore nearing the end of the timeline in which they need to return liquidity to their LPs. The typical VC fund cycle is eight years to 10 years.

A “smart” company plans for its lockup early on, said Leslie Pfrang, partner at Class V Group, an IPO advisory firm, and should be speaking with its investors around the IPO to set appropriate expectations of the company’s future and of the company’s first couple of earnings reports before the lockup expiration.

If the company has done well since its IPO and is in demand by investors, it can typically organize a follow-on offering, in which the company controls the number of shares it sells and additionally forces those sellers into another lockup, eliminating their ability to sell in the first lockup.

Read also: Why Snap lost $2.2 billion in its first quarter as a public company

But that can be hard to organize if the company has not at least beat or met earnings expectations or delivered on other promises. Snap could check those boxes as well, as the company missed first-quarter earnings expectations and has had issues growing its user numbers, amid competition from Facebook FB, +1.85% .

“Lockups aren’t the problem,” Pfrang said. “Missed execution and not planning appropriately are the problem.”

However, Scott Devitt, an analyst at Stifel, said in a recent note that he does not expect as many shares to be sold, as about 60% of the shares are held by Snap executives, including the company’s co-founders, who he sees as having a longer-term interest in the health of the company.

Snap shares have lost 35% in the past three months, while the S&P 500 index SPX, +0.70% has gained 3.7%. The stock fell below its $17 IPO issue price on July 10 and has stayed below that level since, reaching fresh intraday lows this week.

Still, investors can take heart that a large post-lockup selloff does not necessarily spell disaster for a company. For example, Facebook suffered a bumpy IPO, experienced a selloff by insiders and early investors around its first lockup and ended its first year on Wall Street with its stock down more than 30% from its IPO price. Four years later, the stock has quadrupled and Facebook can seemingly do no wrong on Wall Street.

“It’s a temporary effect,” Ritter said of lockup declines. “In the long run, whether the company executes its business model is what matters.”