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IPOs vs Direct Listings – key differences

Miguel A. Rodriguez
Miguel A. Rodriguez
09 November 2022

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.).

#Bumble, #Airbnb and Oscar Health Insurance are some of the latest examples of companies going public through Initial Public Offerings.

For further study to improve your knowledge about IPOs:

7 Major IPOs of 2020

How to trade IPOs – A Short Guide

3 Reasons to Trade 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.

#Slack and #Spotify are two prime examples of companies going public with a bang through Direct Listings.

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, they go separate ways in four major areas.

  1. The Underwriting Process

In a traditional IPO, companies sell shares to underwriters, who then sell them back to investors. Additionally, these intermediaries plan and participate in investor meetings. More importantly, they get a commission on the sale of shares after the IPO.

In a direct listing, companies sell shares without any involvement from underwriters. Still, they are required to hire financial advisors, whom they pay a flat fee.

  1. Share Distribution

When they launch an IPO, companies issue new shares to raise capital for different purposes, including expansion, research, development and more. On the other hand, direct listings do not create new shares. Instead, they help shareholders increase liquidity levels by selling current shares.

  1. Stock Pricing

During a traditional IPO, investors can buy shares at the IPO price set by the company. Also, businesses opting for IPOs have lock-up periods in which existing shareholders cannot sell their shares in the public market. This prevents an overly large supply in the market that would decrease the price of the stock.

In direct listings, investors buy shares at a market-driven price, based on supply and demand. At the same time, shareholders can access liquidity instantly, without having to worry about the lock-up explained above.

  1. Investor Guidance

In an IPO, companies organize roadshows, promoting their stocks to institutional investors to generate interest and get the markets excited. However, they cannot provide any financial guidance due to liability concerns, but research analysts can assist with investor education.

As for Direct Listings, businesses can offer financial guidance. They generally announce their decision to go public during Investor Day. *

* A meeting where management gives analysts and current and potential investors a deeper dive into their results, strategy, culture, or plans.

 What to trade: IPOs or Direct Listings?

Ultimately, the decision is up to you, as both IPOs and Direct Listings can turn into viable opportunities for you. Also, keep in mind that experts recommend checking out how liquid a stock is before it hits the market. The more attractive a business looks to investors, the more you could potentially stand to gain by trading it! Be careful though: IPOs and Direct Listings tend to generate increased market volatility, so make sure you go in prepared.

Follow the latest companies going public and never miss your chance to trade the next big thing!







Miguel A. Rodriguez
Miguel A. Rodriguez

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.