NASDAQ DIRECT LISTING

What is a Direct Listing at NASDAQ?

Bowarr have emerged as an attractive alternative to traditional initial public offerings (IPOs) as the financial landscape continues to shift. A straight public listing offers the Company a few appealing advantages. This method, we believe, has the potential to boost the Company’s growth prospects while also providing a variety of benefits to your shareholders and stakeholders. The traditional IPO process systematically underprices the stock of companies who use it. From 1980 to 2020, companies going through the traditional IPO process have underpriced their stock by an average of 20% and left a collective $200 billion on the table. In 2020 alone was even worse with an average of 48% underpricing, and $30 billion left on the table. A direct listing also allows the Company to set a fair market price for its shares. Rather than depending on valuations set by investment banks and underwriters.

The difference between an IPO and Direct Listing?

The main difference between an initial public offering (IPO) and a Direct Listing is the way in which the company’s shares are made available to the public.

In an IPO, the company hires an investment bank or group of banks to underwrite and sell newly issued shares to institutional and retail investors. These investment banks are responsible for setting the initial price of the shares, marketing the offering, and providing liquidity support to the stock after it starts trading.

In contrast, in a Direct Listing, the company does not issue any new shares and does not work with any investment banks or underwriters. Instead, the company’s existing shares are listed on a stock exchange, such as the Nasdaq, and made available for trading directly to the public.

Another key difference is the pricing of the shares. In an IPO, the underwriters determine the price at which the shares will be offered to the public. This price is usually based on a combination of factors, such as the company’s financial performance, growth potential, and demand from investors.

In Direct Listing, the company will let the market determine value based on supply and demand dynamics. This transparency may boost investor trust, attract a broader range of shareholders, and result in a more accurate valuation for the Company.

Finally, in an IPO, the company typically raises new capital, which it can use to fund its growth and expansion plans.

In a Direct Listing, the company does not raise any new capital, but instead allows its existing shareholders to sell their shares on the open market.

BENEFITS OF A DIRECT LISTING ON NASDAQ

A Direct Listing can be a more cost-effective way for a company to go public than an IPO.

A Direct Listing can be a more cost-effective way for a company to go public than an IPO.

In a Direct Listing, the company retains greater control over the pricing of its shares and the process of going public.
A Direct Listing allows a company to access a broad base of investors, including institutional investors, retail investors, and employees.
By going public, a company’s shares become tradable on a public exchange, which can increase liquidity and make it easier for investors to buy and sell the company’s shares.
A Direct Listing can provide greater transparency around the pricing of a company’s shares and the demand for those shares, as the market determines the price of the shares based on supply and demand.

Direct Listing FAQs

What is a Direct Listing at Nasdaq?

A direct listing enables companies to access the public markets. With a direct listing, existing shareholders sell their shares on the open market, and no additional shares are offered to the public.

How does Nasdaq's Bookviewer technology support a direct listing?

Nasdaq’s best-in-class technology, the Bookviewer, provides a transparent real-time view of order data. In a direct listing, Nasdaq’s Bookviewer gives the Financial Advisor access to the full order book on their desktop.

The difference between an IPO and Direct Listing?

When a company decides to go public, there are typically existing shareholders including founders, employees, and various early stage investors. Both an IPO and a direct listing enable these investors to cash out. However, in an IPO, there is a lock-up period—typically between 90 to 180 days—in which shareholders are restricted from selling outside of the Initial Public Offering. In a direct listing, there are no lock-up restrictions.

How does the pricing process differ between an IPO and direct listing?

An IPO is priced based on the size and number of orders received at different price levels throughout the roadshow. The lead underwriters typically determine the IPO Price based on this information.

Conversely, a direct listing has a Reference Price, which isn’t the Offering Price, but rather the calculated price of the shares after all the buy and sell orders have been received from broker-dealers. The Reference Price is used to open the stock. Transparency is critical in calculating the right Reference Price and helps reduce the chance of price volatility once the stock opens for trading.

What is the Direct Listing with Capital Raise?

A Direct Listing with a capital raise allows a company to go public without the need for an underwriter, which can result in lower costs and a simpler process.

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