Direct Listing
IntermediateA direct listing is a way for a private company to have its existing shares listed and traded on a stock exchange without issuing new shares or using underwriters, as in a traditional initial public offering.
In a traditional IPO, a company works with investment banks to sell new shares to investors at a set price before trading begins. In a direct listing, the company’s existing shareholders, such as founders, employees and early investors, simply begin selling their shares on the exchange, with the opening price set by supply and demand.
Direct listings became well known when the music streaming company Spotify listed in New York in 2018, followed by companies such as Slack and Coinbase.
For example, a well-known technology company that does not need to raise new money might choose a direct listing to give its existing shareholders a way to sell, while avoiding underwriting fees and the discount often built into IPO prices.
Direct listings can be cheaper and avoid diluting shareholders. But they do not raise new capital, at least in their traditional form, there is no guaranteed demand and the opening price can be volatile. They suit well-known companies with strong brand recognition. US rules now also allow primary direct listings, in which companies raise new money.
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