The New York Stock Exchange (NYSE) filed a filing with the U.S. Securities and Exchange Commission on the morning of November 26 local time that would allow companies to raise funds through direct listings,media reported. Direct listing means that a company is listed by selling existing shares held by insiders, employees and investors to the market, rather than by issuing new shares in the traditional way.
Direct listings have become increasingly popular since Spotify began to adopt this approach, allowing employees immediate access to liquidity, eliminating priority access for bankers and allowing market-driven price discovery. Companies like Spotify that choose to go public directly can bypass financial roadshows to avoid some of Wall Street’s excessive fees. Throughout history, however, there have been many companies that have been unable to raise new capital in the process through direct listings.
The NYSE’s new proposal attempts to change that. Specifically, THE NYSE PLANS TO REVISE THE FIRST CHAPTER OF THE LISTED COMPANY MANUAL, WHICH OUTLINES THE INITIAL LISTING REQUIREMENTS OF THE NYSE FOR COMPANIES THAT COMPLETE AN IPO OR DIRECT LISTING. If the amendment is passed, companies listed on the NYSE will be allowed to raise money through direct listings.
This hybrid model is likely to appeal to Silicon Valley tech start-ups, which are clearly becoming more familiar with the path to innovation after the direct launch of Spotify and Slack. Behind these exits, technology industry leaders have called direct listings the latest and greatest way to enter the open market. Venture capitalist Bill Gurley in particular encourages companies to consider this approach. Meanwhile, Airbnb, Silicon Valley darling, which plans to go public in 2020, is said to be considering a direct listing.
Gurley has expressed frustration that bankers cannot price IPOs. He recently hosted a one-day conference on the theme “Direct listing: a simpler and better choice than an IPO”. The event included a number of tech industry elites, including Mike Moritz of Sequoia Capital and Barry McCarthy, Spotify’s chief financial officer.
And earlier this year, Gurley said in an interview with the media about his public support for a direct listing:
“Most people are afraid of strong opposition from banks, so they are afraid to speak out. I’m at a stage in my career where I can control the scene. “