What is the difference between IPO and direct listing?

One of the more recent direct listing a.k.a direct public offering (DPO), and widely known company is Spotify. They chose to go direct listing because this company needs no introduction whereas your underwriters from IPO companies usually have to go about pitching the particular IPO to investors.

Direct Public Offering

Pros

Cheaper - Lesser underwriting fees paid to the big banks (3% vs. 13%)

No lock-in period for existing shareholders

Everyone has access to the stocks

Cons

Usually market will price stock lower than expected.

Lesser funds raised as opposed to IPO

The above pros and cons of DPO, when flipped around, would be the pros and cons of IPO

Hello!

Essentially the objective of a company going into direct listing or IPO would be that they are looking to raise interest-free capital from the public through the listing of shares.

Smaller companies would usually choose the direct listing process instead of IPO. This is because using the process of direct listing is usually cheaper as compared to an IPO.

For IPOs, the company uses the services of intermediaries which are called underwriters who will facilitate the IPO process and charges a commission. On the other hand, direct listing would not need such an underwrite, thus making the process much cheaper.

Direct listing occurs when the company sells shares directly to the public without getting help from intermediaries while IPOs usually get help from underwriters.

Hope this helps!