You Can Buy Their Glasses, But Not Their IPO

If a stock is listed in the forest, and no one underwrites the IPO, does it make a sound?  Yes – if the stock was ‘direct listed’ as was Warby Parker’s recent listing on the NYSE.  And more than just making a sound, the eyewear retailer has made a big splash along with Spotify and other companies that are using the new approach.

For-profit companies are owned by someone(s), and all business leaders should understand how their company’s ownership is structured and how the company has been capitalized.  Most for-profit companies in the U.S. are still privately owned with no publicly available shares, and only a handful (~6,000) of the ~33 million U.S. companies are listed on the NYSE and Nasdaq stock exchanges with their ownership shares publicly traded.

If you’re an owner of one of these private companies, ‘going public’ allows you to benefit from selling some or all of your shares in the company.  And the routes that companies can take to go public and list their shares on stock exchanges have expanded over the last several years.  Including direct listing rather than a traditional IPO – which is working out just fine for Warby Parker.

US News wrote a summary article describing how alternative stock listings work and why anyone would want to use them:

  1. Traditional IPO: raise money and awareness for the company; underwritten by investment banks; new shares dilute existing share value.
  2. Direct Listing: private shareholders can sell their shares directly to new shareholders; no new shares are issued and no dilution; no underwriters, so is cheaper than an IPO.
  3. SPAC (Special Purpose Acquisition Company): a ‘blank-check’ shell-company, not an actual business; goes public to raise money to buy other companies; must buy a company within 2 years or give the money back to shareholders.

You’re probably wondering what’s next – a SPAC IPO in space, maybe?  Good guess, Virgin Galactic and other space companies are riding the SPAC trend and sparking rocket-fueled market caps.