Mega cryptocurrency exchange $Coinbase(COIN.US)$ is about to launch one of the most highly-anticipated public offerings of 2021 so far.
The crypto marketplace, which some estimate could fetch an astonishing $100 billion valuation (though based on Coinbase's reference price, its valuation may be more in the $65 billion range), is set to begin trading tonight, but via a less-common process: the direct listing.
How does a direct listing work?
You may remember direct listings from big debuts like $Spotify Technology(SPOT.US)$, $Slack Technologies Inc(WORK.US)$, and $Palantir Technologies(PLTR.US)$in 2018, 2019, and 2020, respectively, and more recently from a handful of unicorns that have elected to go public via direct listing.
Direct Listing, also called Direct Public Offering (DPO), is the way companies sell shares to the public directly, in which no new shares are created and only existing, outstanding shares are sold with no underwriters involved.
With traditional IPOs, companies need the services of intermediaries called underwriters, who facilitate the IPO process and charge a commission for their work. But with DPOs, companies can get rid of the help of these intermediaries in the process.
Thus, for those who can't afford underwriters, don't want share dilution, or are avoiding lockup periods, DPOs are often better choices.
Big change of stock listing in history
On December 22, 2020, the U.S. Securities and Exchange Commission announced that it will allow companies to raise capital through direct listings, paving the way for circumvention of the traditional initial public offering (IPO) process.
Why would a company like Coinbase choose a DPO instead of an IPO? Let’s consider the differences.
Pros and Cons of DPO
Dear fellow investors, which listing method would you choose if you were Coinbase CEO?
How much do you think the opening price will be after Coinbase's debut?
We welcome your comments!
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Source: Fortune, Investopedia