4 ms·

An IPO is 2 things: 1) Transferring ownership from existing investors to new investors 2) Raising capital. You can't really do 2 with a direct listing. Compa

An IPO is 2 things: 1) Transferring ownership from existing investors to new investors 2) Raising capital. You can't really do 2 with a direct listing. Companies IPO mostly because they need money not because investors want liquidity

nemothekid 6y ago
I'm not sure how you cannot do (2) with a direct listing. The company can just issue new shares to sell on the direct listing, no differently than issues new shares in a new fundraising round
- bradleyjg 6y ago
  Have there been any of these direct listings with share sales yet?
  - vessenes 6y ago
    Every public company has the ability to work shares into the market directly once public; this often goes unannounced.
    - bradleyjg 6y ago
      I believe you need to what a year to become a well seasoned issuer, prior to that you’d have to do almost as much paperwork as an ipo.
- neximo64 6y ago
  I'm not entirely sure how that's possible. If you knew stock was being sold in significant quantities (~10-20% of the company) in extremely short periods of time its almost a guarantee the price will drop on listing day. Previous direct listings have all been about transfer of ownership.
  - Retric 6y ago
    Raising capital doesn’t mean it needs to raise 10+% on day one. Even 1% would take a while to spend.
    - asdfaoeu 6y ago
      There are usually listing requirements that require that the public owns a large portion of the shares in the case of the NASDAQ it seems to be 10%. If the company hasn't already sold these shares they would have to sell them on day 1.
      - Retric 6y ago
        The company doesn’t need to put those shares up, it can be any mix of the current shareholders and new stock.
  - repsilat 6y ago
    If the offering is announced and expected the price impact will be lower than surprise-selling. And companies at-the-market offerings aren't exactly unheard of.
    - neximo64 6y ago
      Companies with at market offerings have liquidity beforehand to know what the value of the shares are. There are willing buyers and sellers at that price. It's needless to say a direct listing has never been done this way.
- jelling 6y ago
  You could but the company would need to do the sales work that the bankers otherwise would do.
  - edmundsauto 6y ago
    This made sense in the days before modern telecommunications, when investors may not have otherwise heard of this info. Is there reason to think this dynamic still has value?
    - kibibyte 6y ago
      The bankers take on the risk of selling the shares. In the traditional IPO process, the company negotiates the share price with institutions (big banks, hedge funds) in advance of the offering date. On the offering date, the company has a guarantee that it will be able to sell all its shares at the agreed upon price, and therefore be guaranteed to raise a specific amount of money. Those institutional investors will flip those shares to the public, hopefully at a price higher than the negotiated price for a profit. The risk is that this profit isn't a guarantee. Just because everyone's heard of your company doesn't mean they also believe in the company as much as the stakeholders do. With the market being this hot (IMO it's a bubble, but only time will tell), enough public investors are clamoring over IPOs that companies could likely get away with a direct listing like this. Given an extended market downturn though (say, if 2008 happens again), companies will likely find those same public investors to be a lot less eager to snatch up new share offerings.
- andreareina 6y ago
  From my read of FTA, being able to raise money in a direct listing is a new capability: > A company can also sell its shares in the open market to raise capital following a direct listing without restrictions, typically after it has reported quarterly earnings. Some companies opting for direct listings also choose to raise money before they go public through private fundraising rounds. (i.e. direct listing was restricted to only shares held by not-the-company) > The NYSE now offers companies the option to raise money in a direct listing after the U.S. Securities and Exchange Commission approved it in December.
m463 6y ago
I recall reading about the Microsoft IPO and how they were forced to do it because their employees wanted to be able to sell their stock. I wonder #2 is more important for some businesses than others ? It's also possible over the intervening years the norm for startup companies is to be well-capitalized from the get-go and require #2 to keep going.
Ologn 6y ago
> Companies IPO mostly because they need money not because investors want liquidity The amount of money US companies that need money get via initial or secondary public offerings is minuscule compared to other methods companies raise money (credit lines, bonds etc.) It has been that way since at least World War II.

nemothekid 6y ago

I'm not sure how you cannot do (2) with a direct listing. The company can just issue new shares to sell on the direct listing, no differently than issues new shares in a new fundraising round

bradleyjg 6y ago
Have there been any of these direct listings with share sales yet?
- vessenes 6y ago
  Every public company has the ability to work shares into the market directly once public; this often goes unannounced.
  - bradleyjg 6y ago
    I believe you need to what a year to become a well seasoned issuer, prior to that you’d have to do almost as much paperwork as an ipo.
neximo64 6y ago
I'm not entirely sure how that's possible. If you knew stock was being sold in significant quantities (~10-20% of the company) in extremely short periods of time its almost a guarantee the price will drop on listing day. Previous direct listings have all been about transfer of ownership.
- Retric 6y ago
  Raising capital doesn’t mean it needs to raise 10+% on day one. Even 1% would take a while to spend.
  - asdfaoeu 6y ago
    There are usually listing requirements that require that the public owns a large portion of the shares in the case of the NASDAQ it seems to be 10%. If the company hasn't already sold these shares they would have to sell them on day 1.
    - Retric 6y ago
      The company doesn’t need to put those shares up, it can be any mix of the current shareholders and new stock.
- repsilat 6y ago
  If the offering is announced and expected the price impact will be lower than surprise-selling. And companies at-the-market offerings aren't exactly unheard of.
  - neximo64 6y ago
    Companies with at market offerings have liquidity beforehand to know what the value of the shares are. There are willing buyers and sellers at that price. It's needless to say a direct listing has never been done this way.
jelling 6y ago
You could but the company would need to do the sales work that the bankers otherwise would do.
- edmundsauto 6y ago
  This made sense in the days before modern telecommunications, when investors may not have otherwise heard of this info. Is there reason to think this dynamic still has value?
  - kibibyte 6y ago
    The bankers take on the risk of selling the shares. In the traditional IPO process, the company negotiates the share price with institutions (big banks, hedge funds) in advance of the offering date. On the offering date, the company has a guarantee that it will be able to sell all its shares at the agreed upon price, and therefore be guaranteed to raise a specific amount of money. Those institutional investors will flip those shares to the public, hopefully at a price higher than the negotiated price for a profit. The risk is that this profit isn't a guarantee. Just because everyone's heard of your company doesn't mean they also believe in the company as much as the stakeholders do. With the market being this hot (IMO it's a bubble, but only time will tell), enough public investors are clamoring over IPOs that companies could likely get away with a direct listing like this. Given an extended market downturn though (say, if 2008 happens again), companies will likely find those same public investors to be a lot less eager to snatch up new share offerings.
andreareina 6y ago
From my read of FTA, being able to raise money in a direct listing is a new capability: > A company can also sell its shares in the open market to raise capital following a direct listing without restrictions, typically after it has reported quarterly earnings. Some companies opting for direct listings also choose to raise money before they go public through private fundraising rounds. (i.e. direct listing was restricted to only shares held by not-the-company) > The NYSE now offers companies the option to raise money in a direct listing after the U.S. Securities and Exchange Commission approved it in December.

m463 6y ago

I recall reading about the Microsoft IPO and how they were forced to do it because their employees wanted to be able to sell their stock. I wonder #2 is more important for some businesses than others ? It's also possible over the intervening years the norm for startup companies is to be well-capitalized from the get-go and require #2 to keep going.

Ologn 6y ago

> Companies IPO mostly because they need money not because investors want liquidity The amount of money US companies that need money get via initial or secondary public offerings is minuscule compared to other methods companies raise money (credit lines, bonds etc.) It has been that way since at least World War II.