A direct listing is another way for a private company to go public. A direct listing enables a company to make its shares directly available to the investing public without the underwriting process or restriction of IPO pricing that comes with a traditional IPO.
A direct listing is typically faster, easier and less expensive than an IPO as it doesn’t require an underwriting process or fees and faces fewer regulatory requirements. A direct listing also offers companies more flexibility in how much stock they list, who can participate and the IPO share price.
A direct listing does have disadvantages compared to an IPO, however. Because it doesn’t involve underwriters, a direct listing has no minimum guaranteed price for the shares and doesn’t enjoy the “stamp of approval” the underwriting process brings. There may also be liquidity concerns, since a direct listing doesn’t involve the issuance of new shares. A direct listing may also suffer from lack of investor awareness, since it doesn’t have large underwriting firms promoting the offering and drumming up investor interest.