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I explained what this means in another post but I have been asked a few times why this is sensible.
Seasoning means the company at IPO Can’t join the index. Free float means even after it does, its weight is only based on how much got sold last, not the total number of shares.
So here’s why it’s done.
Let’s suppose a very lossy company burning through venture capital decides to IPO. AND let’s assume it is worth $10 million pre-IPO. And here’s the super cynical thing that could happen.
Imagine this is all crooked. The company is losing money fast, and will run out in two years. To make money for the VCs, they could do this.
First, they arrange to sell 1% of the company to someone helping them swindle for $10 million. This gives them cash. But, they say, we just sold 1% for $10 million. Well, then, the total company is worth $1 billion! It has to be if 1% is $10 million.
So wow! At IPO it is a billion dollar company!
Now many uneducated investors will think “damn! I need to get some.” So what do they do? They sell their stake that was worth $10 million before the IPO for $990 million. They have just made their wealth grow 100% or so, and if the company goes bankrupt they don’t care: their money is in the bank. But when it does, all those poor people who bought it lose everything.
To get around it many index providers do two things.
First, is they say we’re only holding it in the index as if it’s worth $20 million, since that’s all new investors paid (roughly speaking)
But, even then, they demand “seasoning”
Let’s take SpaceX. To get into the S&P 500, a company must have at least four quarters in a row of profit. SpaceX? It had about $18 billion of revenue in 2025, but lost over $5 Billion. And they don’t expect a profitable quarter before 2030! So, using the S&P rules, it will be at least 2031 before it is even at all in the S&P 500
The free float and seasoning rules are to prevent a variation on the thing I described happening.
Do I think SpaceX is a total fraud? No. Will I invest a single dollar into it, when launching a million data centers in space is their goal? Not on your life. I’m not investing a penny.
Do what you want, but I’m staying in index funds that will not have any SpaceX for at least ten years until it makes a profit. If it ever does. I’m not getting left holding the bag so venture capitalists get rich. They can bet on a million data centers on the sky - when, if you really needed a lot, you could have them on board in the ocean at a hundredth the cost.
I’m pretty sure this is going to be another Musk promise: a million robotaxis a few years ago, a million android robots replacing people soon, a. Million cyber trucks, and millions of fully self driving cars - which was to happen by 2020 or so.