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Comparing direct listings to IPOs always seemed odd to me. An IPO is a fundraising event. A DPO does not raise any money for the actual business, but it gives
by the_watcher 7y ago
Comparing direct listings to IPOs always seemed odd to me. An IPO is a fundraising event. A DPO does not raise any money for the actual business, but it gives liquidity to existing shareholders. The reason we're seeing them now is that there are companies who don't need an IPO to raise money, but have shareholders who have waited 10 years for liquidity.
- ProfessorLayton 7y agoWhile yes indeed some employees have waited many years for a liquidity event and want a payout for their hard work, the other shareholders are LPs with a venture capital target date on their funds. This means that the company will either need to keep raising money to buy out earlier investors that need to hit their fund target dates (Rather than raise it all for themselves), or they'll need to go public at some point, even if they don't need the money per se. Keep in mind that investors get lot's of sway via their board seats. If you're in the business of losing money, this game of hot potato becomes harder and harder to play over time. (Someone correct me if I'm wrong.)
- dvt 7y ago> This means that the company will either need to keep raising money to buy out earlier investors ... Isn't this the literal definition of a Ponzi scheme? Isn't using new money to pay old investors technically illegal?
- AmericanChopper 7y agoNo. A Ponzi scheme uses money from new investors to pay returns to old ones. Generating liquidity for investors to sell equity is not at all similar.
- jrumbut 7y agoIn a Ponzi scheme there isn't an actual business occurring, or only the facade of one. If they make money, they can stop raising from investors. The line can be a little fuzzy, since some Ponzi schemers pretend to be an honest business and some real businesses end up being, functionally, a Ponzi scheme.
- dvt 7y agoMakes sense, thanks for the clarification!
- the_watcher 7y agoThe VC fund can sell in the DPO as well. A DPO is literally exactly the type of event that would allow a VC firm to generate a return on their fund without a new fundraising event.
- pbreit 7y agoDPOs do not preclude company from raising money. Slack did.
- paxys 7y agoNo that is exactly what a DPO means. Slack did not issue new shares or raise any money when it went public.
- tomnipotent 7y agoNo, it doesn't. Companies can still issue and sell new shares during a DPO. Where did people get this silly idea that companies do not raise capital during a DPO? Slack simply chose not to do so.
- pbreit 7y agoI thought it was more but Slack did issue at least 1.2m new shares in the offering.
- deleted 7y ago[deleted]