Reading: Alternative Going Public Strategies

The preceding sections have discussed the costs and benefits of a "typical" IPO that relies on an underwriting syndicate to place and price the shares with the investing public (primary market) and then launch the firm on a stock exchange (secondary market).

While this structure has many great benefits, we have also seen that it tends to be rather expensive. The two additional parties that are introduced to smoothen the process, the underwriting syndicate and the primary investors, both require a significant compensation for their involvement: The underwriters typically charge up to 7% of the gross proceeds and the primary investors expect to earn a return of roughly 15%, on average. Together with the direct costs of an IPO, the total costs of an IPO can therefore easily amount to 25-30% of the capital raised.

In light of these significant costs, it is not surprising that firms look for alternative ways to go public. One such way is the "Direct Listing," which completely cuts out the middle men—the underwriting syndicate and the primary investors.

 
This section takes a closer look at direct listings:

• We start with a brief overview of the basic logic behind direct listings
• We discuss the key advantages and disadvantages of that listing strategy
• We look at the recent case of Spotify's direct listing.