IPOs are expensive and cumbersome – Try a direct listing, like we did at Spotify (opens in new tab)

This is a consistently under-appreciated part of modern venture markets. (Disclaimer: it's also one I'm involved with.)

Spotify did $16 to 20 billion of private secondaries in just the first month and a half of 2018 [1]. This gave shareholders public-like liquidity, reducing pressure on management. It also gave public investors years of price history.

[1] https://www.sec.gov/Archives/edgar/data/1639920/000119312518... page 170

It's a really bad idea to do stock picking, or any other risky investment strategy, with your retirement account, and a really bad idea to promote it. One company goes bust and suddenly you lost your retirement savings. Or your parents did and you'll have to explain them why they'll have to continue working in their 70s and 80s.

I hope you and others follow in Spotify's shoes in normalizing direct IPOs.

Therefore being a household name in consumer internet or media space will help enormously if one chooses a direct listing. Uber or Pinterest would expect quite a pop day one. Whereas more bleeding edge names such as Docker or Ginko Bioworks may be required to do a PR push to educate the retail investor.

Best of luck ;)

> Yet over time, Dell came to the realization that servicing all of its debt, making strategic acquisitions and boosting shareholder returns was more challenging for a company that couldn’t easily tap the public markets.

https://www.bloomberg.com/news/articles/2018-08-08/dell-s-le...

1: Consider whether your company is big enough to attract a decent number of investors and achieve liquidity, let alone analyst coverage. At least $100m valuation, but preferably a lot more. It all goes back to revenue.

2: Make sure you have enough investors with enough shares each to meet market minimums. If not then you need to do a pre-IPO round.

3: Consider the forecast-ability of your financial results - the best outcomes (long term growth without plunges in share price) are for companies with predictable growing revenue.

4: Consider attractiveness to banks - ideally try to get a fully underwritten offer from a top tier bank (or syndicate), and you would pay well for that, as the article shows. Alternatively consider finding your own series of investors which means meeting with countless investors well before you list and understanding what they need etc. Someone needs to buy those shares after you list.

5: Consider your current customers and overall reach in the investor population. Are you able to use them to attract/excite new investors? e.g. Xero is accounting software, and many of their early investors were accountants who understood how dramatic the change would be that it was bringing to their profession and their clients.

6: Consider whether your company has the ability to raise a very large amount of money at very high valuations on public markets due to the frothy prices. A hungry 3rd tier bank can help you go get a bunch of cash (making sure they get paid well) and while the share price will almost certainly fall, just make sure that the cash is spent slowly and wisely until you grow into your value.

a: Transparency: This is not as hard as it's made out to be, but you do need people whose job it is to provide the external information, both from a compliance and from PR/Investor Relations perspectives. You need to get your forecasts right - and that's hard, do roadshows (and you need a merchant bank to help), get analyst coverage and so on. Often it's the CEO who has to do this, but the Board will also be under a lot more scrutiny.

b: Unfriendly VCs: There are VCs and VCs - look for nice ones - e.g. a large family office with a very long term perspective on investing, or for VCs that have an aligned perspective. If your company is any good then create and auction and dictate terms. If your company is outrageously good then the IPO is easier, and if your company is lousy but attractive (cool) to the stock market then you might be able to get an IPO away, albeit with a bank's help and cut. Good = EBITDA, revenue and growth - the larger the better for all.

Public stock markets are often really uninformed about the strength of smaller tech investments (in particular), and in this sector value is highly volatile. You can take advantage (as mentioned above) of frothy valuations. On the other hand if (when) the stock price falls then following rounds will be dilutive, assuming you can find investors. Also when the price falls the entire company gets demotivated, while if the price is frothy then it's hard to provide share-based incentives.

c: Secondaries: Line up new investors before unleashing the internal sellers. Escrow periods help show the market that the shares won't be immediately dumped. Meanwhile you do have timing issues where insiders are only allowed to sell at certain times.

d: Capital Raising: sure the terms might be better but there are plenty of strings that the market/regulator puts in place. Arguably harder, but gets better with size.

e: F&F: Do the numbers to see how much money these folks actually have. They might not move the needle much.

f: Trust is easily destroyed too - you can't put a foot wrong on forecasts, announcements and so on. And when things go bad they go really bad.

Market updates are a weapon for and against you. Engage a IR firm to help.

Overall: Only IPO if the money is cheap (i.e. valuations and amounts raised versus the extra costs) or you are huge and need to provide liquidity to investors.

Edit: yes, sec requires quarterly updates.

Great read: https://news.earn.com/thoughts-on-tokens-436109aabcbe

You are thinking as a potential new investor, and your interests are not aligned with employees and early investors.

Employees and early investors have had what is likely to be a large fraction of their net worth tied up in one company for a long time. They have a clear incentive to take some of that money out and diversify their risk. You, as an outside potential investor, are looking to put a small fraction of your net worth into a hopefully good opportunity.

Yes, you would like to believe that everyone who owns the stock believes in it with their heart and soul, and wants to invest in it forever. And yes, you would like to have the supply of stock limited as long as possible by keeping insiders out of the market. While you're continuing to wish, you'd wish that all employees were happy, and productive, with no desire to ever do anything by slave away creating value.

None of these wishes are reasonable from the point of view of real people who have sacrificed years of their life creating the company that you're looking at.

I think they are right but they really have no proof that they avoided the IPO pop discount. They actually opened trading at $165.90 and closed at $149.01.

You are trivially right that they can't PROVE that they would have had to pay a pop discount the other way, but the odds are that they would have. Typically the pop is 15-30% on the first day. That's a lot of money.

errr... they do, but they also want to buy that apartment or car that they held off on, or pay off loans they took. Employees and founders don't sell all of their stock.

Not to mention that regardless of personal convictions, as an employee or founder you'd like to diversify your investments.

Is it reasonable for investors to want a lock-up period - sure, but the fact that the company would prefer not to have a lock-up period shouldn't really be a red flag.

Not to be that guy on HN but it would seem this is the area should leverage blockchain to do a public offering (ICO for equity) and show how blockchain/tokens could be used to cut out the investment banks and save a company $50M on a public offering.

> This was listed as, I think, a positive but I see it as an extreme negative. Why invest in your company if you don't have the conviction that it will be worth more 3-6 months from now.

This is silly. You could make the same statement judging employees for selling at any arbitrary point in time. So why not lock them up for a year? Why not two?

Founders and executives of very successful private companies sell shares during Series B and later rounds, and yet the new investors in those rounds are willing to buy them at close. Are those new investors fools to pay off founders without conviction?

On the contrary, investing in a newly listed company that still involves a lot of employees locked up in the company's stock is a scary proposition. Who knows how many will sell immediately when they're permitted to, and the share price will likely be discounted by investors accordingly.

This is a nonsense statement. Companies control their revenues, profits, budget, etc. They have very little control over their stock price, and they especially have no control over short term stock prices, like 3 to 6 months. Companies should be focusing on the long term and not looking at the stock price, but employees care about liquidity.

Because you think it will be worth more 3-6 years from now.

Incorrect. They opened at $120, jumped to $165 then dropped to $149.

TFA:

> At Spotify, we chose more of a free market approach.

and

> we didn’t need to raise capital to fund our growth.

These are the 2 key points that people are going to miss. The reason to use a bank to underwrite your IPO (and make the market) is to backstop the price. The company isn't "leaving money on the table" when they price "too low" and miss the first day pop. They are buying insurance against internal pricing error.

I would like to see an independent analysis, not a supporting article from the CFO of the company that could afford the risk.

Please excuse me if my own armchair look at it is hopelessly naive.

What if they got stuck in some scandal? IPO is also a way to shield the company from action of an evil executive.

If some politician has a beef with a private business, they can potentially cause them enormous loss.

But no politician would like to take some action which might cause public losing money because of the fear of losing their support through votes.

Not only this, it's also a feedback mechanism. A company exceeds quarterly expectations, more people jump to buy their shares as a result executives sell and profit. And large companies will have projects which might take long to profit, but they can be immediately judged on their next move post IPO. How will this work in a private company?