The traditional initial public offering process may be in the process of being disrupted.
Spotify went public last year using a different process and may soon be followed by enterprise software company Slack.
Startups have good reasons to spurn regular IPOs — they’re costly and time-consuming.
Thanks to the massive amounts of money that have flowed into Silicon Valley in recent years, many companies are likely well positioned to go public a different way.
The avalanche of money that’s piled into Silicon Valley lately may be starting to disrupt more than just the taxi business and commercial real estate — it might upend one of the most celebrated and time-honored traditions of tech startups: the IPO.
The Wall Street Journal reported Friday that Slack, the popular corporate messaging provider, plans to hit the public markets later this year through a direct listing. That’s the unusual process that subscription music service Spotify used last year to go public. Should Slack’s listing prove as successful as Spotify’s, expect the floodgates to open for more of these listings.
Read this: Slack is reportedly following Spotify in going public through a direct listing. Here’s how a direct listing works.
In a direct listing, a company’s private shareholders sell some of their stakes more or less to investors at large on the open market. That differs from a traditional initial public offering, where investment banks typically line up institutional investors to purchase shares at a set price from the company and its early shareholders.
A big reason why companies hold IPOs is to raise additional funds. In a direct offering, the point is to allow insiders and early backers to freely sell some or all of their stakes; the company typically doesn’t raise any funds from the listing event.
Slack and Spotify didn’t need money from the public markets
The reason a company such as Slack and Spotify can go public and not worry about raising any funds in the process is that their coffers are already overflowing with funds. Before it went public last year, Spotify, for example, had raised $2.1 billion, according to PitchBook. It still had about $1.5 billion of that left and, because its operations were already generating cash, it was adding to that stash.
Slack is in a similar position. It’s raised $1.2 billion to date, according to PitchBook. Even after CEO Stewart Butterfield said it had more than enough cash, he stuffed …read more
Source:: Business Insider