After a wave of underperforming IPOs, since Uber and Lyft went public with lower offerings than what was expected by the market, and more recently, with WeWork‘s withdrawal of its long-awaited debut in the stocks exchange; tech-investors are skeptical on the results of private companies going public.
That was one of the topics that stole the scene during The Disrupt conference, event held in San Francisco from October 2nd to 4th and organized by TechCrunch. The conference, attended by some of the cutting-edge startups and investors, shed light on the discussion while bringing up another solution for the matter: the direct listing.
According to information from Business Insider, direct listings were approached in at least three major panels during the Disrupt conference. “Rather than having underwriters, lineup investors set the price themselves, you just let the market have at it and come what may,” said Spark Capital’s Megan Quinn in a keynote.
Pointed by many of the attendees as responsible for several IPOs underperformance, financial institutions such as Goldman Sachs and JPMorgan were targeted by investors in the event, who alleged that “these banks overhyped companies like Uber and Lyft, running up expectations and pricing IPOs so high that there was nowhere for them to go on the public markets but down.”
Unlike what happens in an IPO, in which a bank or financial institution sets a price, finance the offer and sell to institutional shareholders; in a direct listing, the startup just has to list its shares a public exchange and the stock begins trading. In this arrangement, although the company listing its shares doesn’t have to raise any capital, the employees and early investors can sell their shares immediately.