Top tech bankers explain why they're embracing more innovation in how companies can go public — and say direct listings are just a start


FILE PHOTO: The Spotify logo hangs on the facade of the New York Stock Exchange with U.S. and a Swiss flag as the company lists it's stock with a direct listing in New York, U.S., April 3, 2018.  REUTERS/Lucas Jackson/File Photo

  • Spotify and Slack were the first two big tech companies to choose a new way to go public, opting for a direct listing instead of an initial public offering. 
  • Top tech bankers told Business Insider that they expect more companies to go the direct listing route in 2020. 
  • The bankers also expect to see more innovation for both IPOs and direct listings, even after the SEC this month scuttled a proposed change to allow companies to raise fresh capital in a direct listing.
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Spotify and Slack were the first two big tech companies to take a non-traditional path to public markets by opting for a direct listing over an initial public offering. 

And top tech bankers at Goldman Sachs and JPMorgan told Business Insider they’re seeing more interest in companies learning about the direct listing process for 2020, even if they don’t ultimately choose that route. 

In a direct listing, early investors and employees sell their shares directly to investors, and the company doesn’t raise new money – at least not immediately. An initial public offering, by contrast, creates new shares that raise money in a process that takes more time and costs the company more in fees paid to investment bankers. 

According to media reports, Airbnb is the most notable of the companies considering a direct listing, and it could be even bigger than Spotify. But direct listings will likely remain a niche part of the IPO market overall. And regardless of whether companies choose a direct listing or traditional IPO, timing of public debuts will gravitate towards the first half of the year to avoid possible market turmoil around the 2020 US election, Business Insider reported.

And even though direct listings may represent a smaller pool of fees for investment bankers, the ones we talked to said that they are embracing different paths to going public and working with companies to figure out which option makes the most sense. 

“We’re absolutely on the side of innovation and want to find more paths to the public markets,” said  Nick Giovanni, the co-head of Goldman Sachs’s global technology, media and telecom group. “We understand the private markets have changed and companies don’t need to raise capital when they go public in all cases. We led the Spotify and Slack direct listings, and we’re working on more now.”

To be sure, most of the companies that go public will still choose an IPO, both because it’s a well-trodden path and because it raises fresh money. There’s been a push to allow companies to raise money via direct listings, which would allow them to bring in fresh capital without underwriters, but the SEC earlier this month rejected a proposal from the New York Stock Exchange to do just that. 

“We’ll find an IPO landscape going forward where both elements of the direct listing process and the IPO process continually evolve and improve to give issuers greater optionality on the way they would like to become public,” said Greg Chamberlain, JPMorgan’s head of US technology, media, and telecoms equity capital markets.

JPMorgan is “working with a large number” of companies eyeing a 2020 or 2021 IPO, he said. 

“We spend a lot of time with them quite early in their thinking around the best way they might become public,” Chamberlain said. 

GitLab chief executive Sid Sijbrandij told Business Insider earlier this month that he’s eyeing a direct listing in November – but both timing and the way the development platform goes public could change. 

Sijbrandij highlighted the direct listing’s benefits of lower costs, no multimonth lockup period, and better transparency. Even though GitLab is known for being quirky, the company isn’t banking on SEC rule changes or otherwise looking to shake up the path to listing. 

“We will not try to innovate on an IPO or a direct-listing process,” Sijbrandij said. 

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