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ipo vs direct listing

Which method do you recommend?

So, you want to offer shares in your company so you can raise interest-free capital? Well then, you primarily have two options to choose from: An initial public offering (IPO) or a direct listing. Both methods centre around the offering of shares to the public, they just just about it in different ways.

IPO

This method is where company shares are created and offered to the public – this way capital is raised from public investors through the dispersion of public share ownership.

An IPO can raise significant amounts of investment capital and reach a greater shareholder audience. This method involves the hire of an underwriter, and a lot of preparations, therefore is generally reserved for larger companies who are better suited to dealing with the taxing regulatory requirements and costly fees.

There are also ‘lock-up’ periods which are put in place to prevent the rapid decrease in shares. During these, no shares can be sold for an initial time period, which typically ranges from 90 to 180 days.

Although an IPO is likely to result in a greater ability to expand and reach new audiences faster, not all companies suit this method, as the high costs and lengthy procedures just aren’t feasible for many companies.

Direct listing

With a direct listing no new shares are created, instead, only existing shares are sold to the public. Although this method lowers the expansion ability and audience reached, it is still a cost-effective way to raise capital.

Many companies don’t have the funds to pay underwriters, and they don’t want to dilute existing shares. With a listing there are no limitations such as ‘lock-up’ periods to deal with, as these only apply to companies who’ve created new shares.

There is the risk volatility, which is when the value of shares drops in no employees or investors want to sell their shares to the public. Although, going public provides existing shareholders with liquidity – this allows them to sell their shares to the public if and when they choose to.

Which method should you use?

With a direct listing no new shares are created, instead, only existing shares are sold to the public. Although this method lowers the expansion ability and audience reached, it is still a cost-effective way to raise capital.

Many companies don’t have the funds to pay underwriters, and they don’t want to dilute existing shares. With a listing there are no limitations such as ‘lock-up’ periods to deal with, as these only apply to companies who’ve created new shares.

There is the risk volatility, which is when the value of shares drops in no employees or investors want to sell their shares to the public. Although, going public provides existing shareholders with liquidity – this allows them to sell their shares to the public if and when they choose to.

Next Steps

If your company is planning to go public and raise funds on the capital markets, we look forward to hearing from you.

The easiest way to get started is to request a free evaluation. By providing minimal information about your company and capital needs, we will be able to provide you with a quick assessment by email. In most cases we can tell you if your business is ready to go public, or not yet.

We’ll also let you know if we think that Swordblade & Co are a good fit for your flotation plans, and anything else that we may think can help you.

Alternatively, if you are ready to talk in depth about floating your company, we recommend you arrange a paid consultation with one of our partners. It can usually be scheduled within a few days and is the fastest way to get detailed advice.