How Does a Direct Listing Differ from an IPO?

Alright, let’s cut straight to the chase, as you’ve asked.

A Direct Listing and an Initial Public Offering, or IPO, are two separate avenues a company can take when it decides to go public, to sell its shares on a public exchange.

In an IPO, new shares are created, underwritten, and sold to the public. It’s an orchestrated dance where the company hires investment banks to help determine the IPO price and to find institutional investors ready to buy at that price. It’s a costly and time-consuming process, but it gives companies the opportunity to raise new capital.

A Direct Listing, on the other hand, allows companies to cut out the middlemen. Existing, privately held shares are sold directly to the public without any underwriting from intermediaries. No new shares are created and no new capital is raised. It’s a cheaper, faster route, that gives current shareholders the immediate ability to sell shares, and it provides a more market-determined opening price.

But, remember, the choice between the two often boils down to whether a company needs to raise capital or not. Both approaches have their risks and rewards. The IPO has more safeguards in place, but with more middlemen comes more cost. The Direct Listing is more direct, faster, and cheaper, but it’s a raw exposure to the market.

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