![]() ![]() Why Have Companies Only Started Considering Direct Listings Recently? Instead, they act purely in an advisory capacity, helping a company to position its story to investors, draft its IPO disclosures, educate the company’s insiders on the process and strategize on investor outreach and liquidity. Unlike in a traditional IPO, in a direct listing, investment banks are prohibited under current law from organizing or attending investor meetings, and they do not sell stock to investors. However, the investment banks play a very different role in a direct listing. Companies still engage investment banks to assist with a direct listing, and those banks still get paid quite well (to the tune of $35 million in Spotify and $22 million in Slack). So now you ask: If my company does a direct listing, does this mean that we don’t need investment banks? Not quite. Investors in a direct listing buy shares directly from these company insiders. Instead, it facilitates the re-sale of shares held by company insiders such as employees, executives and pre-IPO investors. In a direct listing, a company does not sell stock directly to investors and does not receive any new capital. The investment bankers are paid a commission for their work that is based on the size of the IPO-usually 7 percent in the case of a traditional technology company IPO. In an IPO, the company engages investment bankers to help promote, price and sell the stock to investors. In some instances, a select number of investors may also sell a portion of their holdings in the IPO, although in most instances this opportunity is reserved for very large stockholders or employees and is not made broadly available to other pre-IPO stockholders. In a traditional IPO, a company raises money and creates a public market for its shares by selling newly created stock to investors. Just What Is a Direct Listing?įor people not familiar with the term, a direct listing is an alternative way for a private company to “go public,” but without selling its shares directly to the public and without the traditional underwriting assistance of investment bankers. ![]() Or you may have attended one or all of the slew of recent conferences being hosted by big-name investment banks and others, including tech investor guru Bill Gurley, who recently debated the pros and cons of choosing a direct listing over a traditional IPO.īefore you decide what’s right for your company, here are a few things you need to know about direct listings. If you are a board member of a late-stage, venture-backed company or part of its management team, you likely have heard the term “direct listing” in the news. Many other late-stage private technology companies are reported to be seriously considering doing it. How to Prepare for a Direct Listing-Best PracticesĪssuming you’ve already weighed the pros and cons and decided that a direct listing is right for your company, we’ve put together a list of a few must-do items to ensure everything goes as planned prior to listing your stock directly.ĭirect Listings: The What, The Why and Common Misconceptions In this article, we explore the pros and cons of direct listings relative to a traditional IPO and some key considerations before choosing the direct listing structure. The high-profile public market debuts of tech unicorns Spotify and Slack are encouraging many late-stage, venture-backed companies to consider whether a direct listing makes sense for them. Direct Listing: What’s Right for Your Company? Should yours? In this article, we discuss why direct listings are all the rage and common misconceptions. Table of Contents Direct Listings: The What, The Why and Common Misconceptions
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