Other companies are going public simply by listing existing shares directly to an exchange instead of doing a more traditional IPO.
So if you are interested in buying new stocks, what are some of the major differences between an IPO, SPAC and direct listing?
IPOs aren’t going away
Going public through an IPO has several advantages. Companies work with top Wall Street firms to price the stock appropriately and find the right buyers.
IPOs also typically wind up receiving favorable coverage for their stock from the investment banks that helped bring them public.
And, given that companies have to file numerous financial documents with the Securities and Exchange Commission before the stock can begin trading, IPOs give prospective investors lots of time to pore over all the intimate details about a company before deciding if they want to buy the stock.
Although new stocks often enjoy big gains on their first day, that hasn’t scared away investors either. Many IPOs continue to do well after splashy debuts.
SPACs’ growing popularity
The knock on SPAC companies used to be that they were only good for companies that couldn’t get the more traditional blessing from Wall Street through a lucrative IPO.
The Grab and WeWork SPACs are another clear sign that larger mature startups have other options to go public. Many companies using SPACs also wind up raising money from large institutional investors like Fidelity through private investments in public equity, or PIPE, deals.
But many smaller private companies that are less seasoned — particularly in younger emerging industries like electric vehicles and crytpocurrencies — may still need to go public via SPACs instead of an IPO. That’s because SPACs tend to have fewer regulatory hurdles to jump through.
Page said the company doesn’t anticipate that it will start generating significant revenue until later this year and hopes to be profitable in 2022.
Direct listings for mature companies
Some companies, albeit a rare few, are able to bypass the IPO and SPAC markets and just list shares directly to an exchange like the New York Stock Exchange or Nasdaq.
The allure of listing directly is fewer fees paid to bankers and more control over setting the stock price. But direct listings are mainly good for companies that already have a strong following and may not need Wall Street to drum up support.
More big unicorns may choose direct listings as a way to capitalize on the growing level of cynicism that many smaller investors have for big Wall Street firms.
“The trust between pure retail investors and banks that have underwritten IPOs has broken down,” said Hugh Tallents, partner with consulting firm cg42. “Because of that, a direct listing makes a ton of sense for Coinbase and some other companies.”