Companies raise money by listing shares on public exchanges via IPOs or Direct Listings. To help you learn how these two work, we’ll look at some key differences.
First things first – which one is which?
Initial Public Offerings – going public the traditional way.
When companies decide to go public through #IPOs, they create new shares and they are obligated to hire helping hands (underwriters) to assist with the entire process. But that’s just the short version of the story.
Underwriters (usually big banks such as Goldman Sachs, Morgan Stanley, and others) have a word in deciding the price of the shares going on sale. They also provide valuable support and expertise with regulatory requirements and even buy available shares from the companies and then sell them to investors via their networks (investment banks, mutual funds, insurance companies etc.).
For further study to improve your knowledge about IPOs:
Direct Listings – the alternative to IPOs.
Companies planning to go public can opt for #direct #listings instead of IPOs for several reasons like insufficient resources to pay underwriters or trying to avoid potentially costly deals with banks.
Instead, they can sell shares directly to the public, with no intermediaries and without generating new shares. Investors, promoters, and even individual employees holding shares of the company can sell their stake to the public, you included.
Now that we got the definitions out of the way, let’s focus more on where Initial Public Offerings and Direct Listings differ. According to techpa.net, they go separate ways in four major areas.