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Capital-raising in direct listings: wait, what?

Could the direct listing format withstand an injection of primary capital-raising? Yes, but not without complications.


The news that the New York Stock Exchange (NYSE) is mulling ways in which capital raising might be added into the direct listing toolkit has sparked a lively discussion among market participants as to the merits – and practicalities – of such a move.

It is a topic that had already been raised by direct listing pioneer lawyer Greg Rodgers of Latham & Watkins in a Goldman Sachs-hosted panel session on the subject back in October, but the concept has taken a step forward with the publication of NYSE proposals on the topic on November 26.

It is early days for the direct-listing method of going public – so far there have only been two such deals, for Spotify in 2018 and Slack in 2019. But as things stand, the format probably has three drawbacks compared with a traditional IPO: it can't raise primary capital; it needs a fairly robust private shareholder base that is about to become the entire market in the company; and it arguably requires a high-profile brand that can market itself to investors in the absence of the full-blown publicity effort that accompanies a mainstream flotation.

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