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Direct Listing vs IPO

Let us talk about IPO first.

Why IPO?

  • To raise capital
  • Recognition and brand strength
  • To give early investors, promoters, employees the opportunity to cashout
  • For future mergers and acquisitions

General criteria:

  • Stockholders equity (NYSE: $40 million)
  • Share price (NYSE and Nasdaq: at least $4 per share)
  • Number of shareholders (NYSE: at least 400 shareholders owning 100 shares)
  • Earnings record (NYSE: Last 3 years pre-tax earnings $10 million or Global market capitalization of $200 million)
  • Outstanding publicly-traded shares (NYSE: 1.1 million shares of total worth $100 million, Nasdaq: 1.2 million shares of total worth $45 million)

Process:

  • Have a good management team
  • Prepare good financial reporting
  • Choose Investment Banker
  • Write company story
  • Registration with SEC
  • Roadshow
  • IPO pricing
  • Ready to go public (Company may choose to postpone the event)

Now, Direct listing.

Why direct listing?

The direct listing gives the company all benefits of an IPO mentioned above. In addition to it, it brings below advantages.

  • No underwriters needed
  • No share dilution
  • No lockup period
  • Less expensive

Disadvantages

  • No guarantee all shares sell
  • May not receive large shareholders such institutional investors
  • Retail investors may cause huge volatility in stock price
  • No Greenshoe option

General criteria:

As mentioned, there are not many rules that need to be followed by the company. Except that the company must sell shares of at least $250 million worth.

Process:

  • Have a good management team
  • Registration with SEC
  • Company talk about the business and financials with investors on “Investor Day”
  • Choose Stock Exchange (At present only possible at NYSE)
  • A day before trading day company CFO along with the Stock exchange set “Reference price”
  • On trading day company goes public

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