“Direct listings make a company accessible to average investors, who are largely prohibited from investing in non-public companies.”
The big purple banners covering the New York Stock Exchange on June 20, 2019 might have been just decoration for another colorful Silicon Valley IPO. But “WORK — the ticker symbol for Slack Technologies, Inc. — was not taking the usual route to join NYSE’s listings. Slack went public with no IPO at all. The tech unicorn, now a unit of Salesforce
joined the ranks of NYSE-listed stocks through a direct listing, not a traditional initial public offering (IPO). Direct listings are different: companies generally raise no new money and only existing shares of the company are traded on the exchange.
But on April 17, the U.S. Supreme Court will hear oral argument in a case that puts this path to the public markets in jeopardy. Direct listings offer unique benefits to companies and their shareholders by allowing existing shareholders to sell their shares on a public stock exchange without the delay and overhead associated with a traditional IPO. This can entice companies to the public markets that may have otherwise chosen to stay private. At a time when both the number of IPOs and the number of public companies remain low, having diverse paths to public listing is even more important for giving investors choice and supporting economic growth. Direct listings offer out-of-the-garage-era employees and early investors in startup companies the liquidity of a public market and enable them to sell their shares at a market price, often with less red tape and overhead than a traditional IPO. Pre-IPO shareholders are usually prevented from selling their holdings for months after an IPO, but direct listings provide early employees and investors in startup companies the opportunity to more easily sell their shares or convert their stock-option shares to cash. Existing shareholders also benefit in a direct listing by selling their shares at a market price, rather than at a price set by underwriters in an IPO (which often leaves money on the table). Companies have likewise found direct listings to be a valuable path to go public. By eschewing the traditional underwriting process, direct listings allow companies to avoid the high transaction costs associated with a traditional IPO. Direct listings thus can provide a cost-effective avenue for a company to go public when the objective is providing employees and early investors with access to the public markets, not raising capital. The Supreme Court …
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