DPOs

A DPO (direct public offering) and an IPO (initial public offering) are similar in that they are both ways a formerly private company can go public and begin to sell shares of stock on the open market. While an IPO is the traditional way companies have gone public in the past, DPOs are increasing in awareness and popularity as large companies like Spotify have chosen to go public this way.

Unlike an IPO that issues pre-market IPO shares, a Direct Public Listing will simply start trading on the exchange upon market open, with privately-held shares from existing investors. This allows companies going public via a DPO to not dilute the value of shares in market, and gives early investors a way to sell their shares more quickly than the IPO process, where there is a typical "lock-up" period as new capital is first raised before existing shares are able to be sold.

Going public via a DPO is traditionally faster and cheaper than going public via an IPO. In a traditional IPO, one or more investment banks serve to underwrite the issuing stock. In this role, they manage several aspects for an IPO that add cost to the business and time to go public, but also security to the process. When a company goes public via an IPO, the underwriters distribute shares among select brokerages who then impose restrictions on who is allowed to participate in the IPO. This can make it hard for all investors to gain access to IPOs.

With DPOs, there is an even playing field, with stocks being listed on the market for everyone to access and trade. The availability of shares is dependent upon early investors, while the price is dependent upon market demand. This makes a DPO a potentially riskier route than an IPO as there could be more volatility and market swings.

In a traditional IPO, one or more investment banks serve to underwrite the issuing stock. In this role, they manage several aspects for an IPO.

• Setting up roadshows to court investors to raise capital for the offering and divvying up IPO shares to other financial institutions.
• Filing a registration statement with the SEC.
• Setting the IPO price and providing a safeguard if demand is weaker than expected.

Unlike IPOs, direct listings do not have an underwriter.

When a company directly lists on the open market, there are no eligibility requirements or forms to fill out. The only requirement is to have sufficient capital in your account to purchase stock.

Traditionally, small companies in industries such as food and biotech have gone public via DPO. Spotify was the first large company to list via DPO.