All about Direct Listings by Jamie McGurk

TL;DR - Direct listings are positioned to become a popular alternative to IPOs.

Helpfulness - 4 (maybe better for Chapter 7)

Tags - direct listing, public market, IPO, Investor Day, roadshow

Questions answered:

  • What is a direct listing?
  • How does a direct listing differ from an IPO?

Summary:

  • Direct listings are an emerging trend among tech startups as an alternative route to public markets.
  • In a direct listing, no shares are sold and no capital is raised.
  • Instead of the typical pre-IPO roadshow, direct listings have an Investor Day (operates like a one-to-many presentation).
  • Companies doing a direct listing provide investors with forward guidance.
  • Because of the lack of 180-day lockup period, early trading of direct listed companies results in a more accurate indication of supply and demand (equilibrium price) because of more volume.
    • In a direct listing, all investors enter at the market-clearing price.
  • With an abundance of capital in the private markets, companies no longer rely on public markets for capital.
  • IPOs cause unnecessary dilution (discounted pricing).

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