Silicon Valley giants failed recently to succeed in their IPOs such as Uber. Therefore, tech experts have been seeking new alternatives. From Spotify, to Airbnb and Slack, new tech unicorns are going public through a listing.
Wall Street markets are surprised and tech listings, such as Nasdaq and questions the future of IPOs. Public listing does not raise any money for the company, hence disrupting the industry.
Investment banks have also expressed their frustration towards public listing, creating a debate in Wall Street on whether to keep the traditional IPO and its 7% rate or to go on public listing. Tomorrow is set to have the first private event for VCs in San Francisco to push the public listing’s option.
IPOs are a decreasing trend
From 2006 to 2015, IPOs were the hottest thing to do in the tech industry. From theatrical launch parties in Wall Street to press exposure, IPOs were also the strongest sign of a good financial wealth of the company.
Facebook embodied the “Silicon dream” in 2012, when it made dozens of its employees millionnaires. But with several scandals – including Cambridge Analytica in 2018, investors slowly lost interest in FAANG.
Uber’s stock has fallen nearly 30% from its IPO price in May. And shares in Slack, which provides a workplace messaging service, have tumbled more than 40% from their first day of trading in June.
— Sumit (@MrJhunjhunwala) September 30, 2019
Shareholders from other companies saw their stocks abruptly decreased – such Uber’s, that haven dropped by 30 percent since its IPO last May.
As a result, several unicorns have decided to take an alternative route and launched on a public listing.
How does a direct listing work?
This year, Slack and Spotify decided to go public through a direct listing. According to Fortune, “a company simply places existing shares in the public domain and lets them trade.”
Recently, numerous venture capitals have backed the idea, as direct listing bypasses the bankers commission, thus reattributing more efficiently to shareholders.
Expect to see the best companies separate the tasks of capital raising + listing by going public through direct listings. Why pay an additional 20-50% “fee” to the banks' most active trading customers when those returns belong to companies’ shareholders? https://t.co/CeyBlssJcO
— Frank Quattrone (@FrankQuattrone) October 1, 2019
The success of this technique is becoming so important in the finance industry that a private company organized for the first time a private symposium on the matter on October 1st in San Francisco. The goal is to convince CEOs of future unicorns to use direct listing to go public.
As a matter of fact, Bloomberg published a story earlier this month stating that direct listing could soon become the new norm in the tech industry.
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Bankers are ready for a new era
As it turns out, many experts have started to believe that direct listing might become the best option for shareholders.
As Benchmark investor Bill Gurley reckons in Fortune, “(With IPOs), we’ve been stuck with the old process for a long, long, time.”.
Later this year, other key direct listings could become the hottest financial events of the last quarter: Stripe, a payment platform in Ireland, as well as Asana, a software provider and even Airbnb are said to be looking at this option.
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