008 – Debunking Direct Listing Myths
Doug offers insight into the benefits of direct listings and debunks a recent article written in opposition to them.
Top 3 Takeaways:
- This article from Renaissance Capital on why direct listings are bad for public investors contains a lot of false or misleading information. Doug shares some facts and where his opinions differ.
- Price discovery and transparency are improved in a direct listing due to the market mechanics involved that adapt the price to the number of shares available and the demand for those shares.
- The lack of a lock-up period in a direct listing, which is said to open the door for management to take advantage of investors and sell stock based on overly optimistic information, is not likely to become an issue based on basic incentives.
- [1:05] Why not having a lock-up period does not necessarily create ann opportunity for unfair discrimination between public investors, insiders, and issuers.
- [4:16] Pricing transparency is not compromised in a direct listing and the supply and demand mechanics create a more efficient price at open.
- [7:35] Price discovery is actually better in a direct listing than a traditional IPO because market makers are setting a price based on order flow, not a general gauge of interest.
- [10:38] Direct listings do not require a predetermined number of shares to be sold because market mechanics will immediately adjust price based on the quantity available.
- [11:49] For many companies with the brand and reach of Spotify or Slack do not need a traditional IPO roadshow to build awareness. Further, the lunches and presentations are very similar to the webcast that they often offer as a substitute.