A Direct Listing

I saw this question pop up in my Twitter feed this morning:

I don’t know anything about Spotify’s plans so I am not going to comment on that.

But the idea of doing a direct listing instead of an IPO is a super interesting to me.

Here is what I said to a friend of mine over email on this subject last week:

we don’t need IPOs to raise money anymore

the private markets work great for that now

but we do need a way to allow small investors to own the stock and we need a way to give employees, former employees, early investors, etc liquidity

So the idea of taking the fundraising function out of the going public equation is super interesting to me.

The questions that come to mind to me are; who will make a market in the stock?, who will write research on the stock?, how will companies build an understanding of their company prior to the listing?, will there be a lockup for existing investors?

The “IPO road show”, which is the roughly two week process before the IPO, is both a sales process to raise the money and a great opportunity to build excitement for the stock and understanding of the business. I guess a direct listing could include a road show as well. I think it probably should.

And the underwriters, who make a big commission on the IPO, commit to trade the stock and write research on the company in return for “being on the cover.” There needs to be some other way to get the investment banks involved in the stock to ensure that there is a market for the stock and research is done on the stock.

Finally, you wouldn’t want the entire cap table to come into the market on the first day of the direct listing. So that means there would need to be a lockup of some sort for the existing investors. But if there is no primary raise, then you would need some shares to trade, so maybe you let some of the existing cap table off of lockup on the direct listing and the rest over time.

I suppose this has been done before. If that is true, then there is a history of prior listings to look at to understand how this is done and how it worked. But as I said earlier in this post, I am super interested in this idea and I would like to see some big companies that don’t need capital but want a public stock try this.


Comments (Archived):

  1. Adam Parish

    I think it’s interesting, I feel like Vonage tried something similar and it didn’t turn out all that great. In other words, is this direct IPO a sign of concern in the Spotify business model? I really like the concept.

  2. William Mougayar

    The part they are skipping (IPO pricing with institutional investors) is somewhat similar to how initial crypto currency offerings are being conducted today. Not sure if ICOs were an inspiration for Spotify, but there’s something good about allowing any average person to own a piece early on.

    1. awaldstein

      Agree completely.Democratization of opportunity is an aspiration worth chasing.

      1. William Mougayar

        … especially that it cuts off the Wall Street banks and their wealthy customers.

        1. pointsnfigures

          “provides competition” is a better phrase than cuts off. They aren’t going away. But, intense competition cuts costs and increases reach for everyone.

          1. William Mougayar

            But in this particular case, it cuts them off, no?

        2. awaldstein

          It doesn’t really do that to my understanding. . what it does it broaden the offering not restrict it.democratization is an inclusive not exclusive, open not restrictive concept.

          1. PeterisP

            It kind of does – the traditional “IPO jump” is in effect a large transfer of wealth from the issuing company/initial shareholders to the Wall Street banks and their wealthy customers who participate in the initial offering. It often is (was?) a price worth paying, but if the pump-up, roadshow and a large influx of capital not needed, then it’s good to avoid it.There are a number of companies now that IMHO should go public because their current shareholders want liquidity, not because the company needs capital.

          2. William Mougayar

            It does cut off the investment banks

          3. awaldstein

            though not people.this one is pretty simple to game I think.I get your point but bc is an opportunity not a panacea nor a philosophy to the future of how we conduct our lives.

        3. JamesHRH

          I read this post and thought “Fred just explained why Blockchains will never catch on.’Wealthy people are early adopters and should be lauded by consumers for the innovation they prove out in a variety of markets. Wealthy people buy enough Teslas to make the Model 3 a near reality for the mass market; they value their time enough to hire domestic help, which has now trickled down to a significant portion of two income families. They participate in early round funding ( traditionally in IPOs but lately in mezzanine but that is not trickling down.So, who will create the direct market for Spotify?Democratization of opportunity may be a recent thing, but the democratization of risk has been around for millennia and the pattern has never changed from the 4/16/64/16 ( known in the future as the Harradence Pareto Square ):- 4% take big risks- 16% take moderate risk regularly and big risk rarely- 64% take small risks regularly and moderately risk rarely – 16 % take as little risk as they can manageSo, if the 4% are in Spotify and the following 16% can’t bring themselves to be that illiquid…..you’re hooped and the Blockchain’s technical capability has no market.Just saying.

      2. Girish Mehta

        Not a bad idea. But Questionable if this is Democratization of Opportunity (see my other comment). A very large chunk of the opportunity is now being captured in the private stage. Which wasn’t the case in the past (Amazon, Microsoft..)

      3. bmathes

        assuming enough information, no bad acting, incentives are ok, reporting, etc.You can say the SEC is too onerous, but you can’t say you don’t need something _like_ the SEC.One ICO founder just absconded with all the monies.

        1. awaldstein

          I’ve never said that rules were something to be done away with.I’ve only been involved in three IPOs at an exec level so my experience is bound by those.

          1. bmathes

            As most internet commenters, I was using your statement to make a general point, not really talking directly at you, nor ascribing any specific implications to you.

          2. awaldstein

            all good.never a reason to be self conscious or apologetic. well almost never…

  3. Tom Labus

    This is a listing not a cash event which some are hammering them for giving up if they go this route. Their IPO window may be determined more by last year’s debt deal than the market. My guess is that they wind up going the traditional route.

  4. Dan Ramsden

    I think this subject is closely related to yesterday’s post on centralization vs. decentralization, where the analogy would be of the IPO underwriter managing a centralized network and the DPO process moving towards the decentralized (sort of). What they both have in common I think is the network requirement. The IPO underwriter makes a market (creates and manages a network), whereas the DPO issuer may feel that the network already exists and can be managed without assistance. In both cases, though, I think the network does have to be looked after and optimized, regardless of the whose role that is, and maybe this also sheds some light on yesterday’s discussion.

  5. Anne Libby

    I have vague memories of 1990s DPO history — was it a beer company DPO that somehow launched Wit Capital? Someone here must remember what happened then, though I don’t know if today’s DPO and the 1990s DPO remotely resemble one another.

    1. csertoglu

      Wasn’t that Boston Brewing?

      1. Anne Libby

        I do remember a Boston connection. (And also IIRC the notion of affixing mail-in coupons to six-packs, for prospective investors to send in to express interest.)When I last thought about it a while back, I casually poked around online and didn’t find much about it.

      2. ShanaC

        They did a Dutch auction with the ability to buy shares through a six pack redemption. Google tried to copy them.

        1. Sudha Lakshmi

          I don’t know about Boston Brewing, but at least the direct IPO Google attempted was not technically a Dutch auction (though the press incorrectly labeled it that way). What Google tried was a modified “second price” auction, which is a closed auction, unlike the open Dutch auction. Basically everyone bids on how many shares they would like to buy and at what price; the price at which the entire allotment clears the market is the price that everyone pays, no matter how high their bid.In any case, Spotify is not doing an IPO at all, either directly or indirectly – though at first I too thought that’s what they were trying to do. There’s no “offering” at all – i.e. they’re not issuing new shares or raising new capital. They’re merely listing the shares they’ve already issued – to founders, early investors, employees – on the secondary market. Of course, a mere listing is bound to be “direct” – after all, there’s no offering for an investment bank to underwrite!

          1. ShanaC

            It was more a comment about what google did and what boston brewing did. And apparently, a modified “second price” auction is a variation of a dutch auction, except as you mentioned, with closed bids. (it was specifically this kind of IPOhttps://en.wikipedia.org/wi… )As for boston brewing, @cstertogluhttp://www.nytimes.com/2012…Apparently the whole “let’s advertise our IPO on our six packs” was a pain in the neck to do

    2. Dennis Mykytyn

      I was an early investor in Wit Capital, which was formed to bring IPOs direct to small investors, after the Spring Street Brewing Company had sold stock to small investors via the internet. But they sold stock to raise capital for the brewery, and there was no public listing, so not quite the same thing as a Spotify offering.

      1. Anne Libby

        I knew someone here would have history! Thanks.

      2. Sudha Lakshmi

        Was there any sort of secondary market for the shares issued through Wit Capital if companies like Spring Street Brewing didn’t list publicly? Just OTC trading?

    3. Sudha Lakshmi

      Google tried to do a DPO as well (though they ended up adopting a more hybrid strategy in the end). And I think Salon did, as well, back in the 90s. At first I thought that’s what Spotify was trying to do: sell shares in the IPO directly, bypassing underwriting by investment banks. But it turns out they’re doing something quite different: they don’t intend to do a public *offering* at all, whether directly or mediated by investment banks! In other words, they’re issuing no new shares and raising no new capital. They’re merely getting their previously issued shares to trade on the secondary markets – NASDAQ, in their case, I’m assuming. There’s no IPO or DPO – there’s just a listing on an exchange!

      1. Anne Libby

        Thank you!

  6. pointsnfigures

    I think you identify a key point: the ecosystem around the IPO. Right now, it’s regulated and organized around the traditional systems. What’s it look like with a clean slate?I 1000% agree with you that one reason to IPO is the employees, early investors, small investors a chance at getting liquid. They committed their capital, and their human capital to a risky enterprise and deserve the chance to cash in. One of the most compelling reasons we pursued the IPO path at CME was to unlock value. We had built a pretty great franchise over the previous 100 years and it was tied up in mutual ownership. Letting the public in unleashed value but created other issues.Additionally, the IPO is one event. The real work comes after. Who will make markets every day and provide liquidity? That becomes easier with electronic algorithmic market makers. However, one of the big functions of the investment bank road show is getting big fund managers to commit capital to the stock. Without them, the stock is destined for the pink sheets and that’s not good for the company.A counterpoint to my pink sheet observation is markets are efficient. Smart, risk-loving investors could acquire that stock and make a fortune (see Andy Kessler)It’s not that this cannot be done, but it does alter the way we look at the structure of the current marketplace. Changing that structure will run into some brick walls at the SEC and FINRA.And yes, blockchain might have something to say about it.

    1. awaldstein

      explain pls:”And yes, blockchain might have something to say about it.

      1. pointsnfigures

        blockchains that are designed as marketplaces. they become a system of record, but also commitment. since they are decentralized, anyone could “lead” a deal. The IPO system today is highly centralized.For example, suppose I am Spotify. I am going to IPO. What’s my first action? Calls to 4-5 investment banks to talk about it. Over the past few years if investment bankers are any good they have developed a relationship with the company and receive that call.(spitballing ideas here) What if I didn’t call the banks but called someone that could organize capital with an established reputation (a VC firm, a PE firm, an analyst only firm, a law firm, a highly visible individual) and they organized the IPO on a private blockchain? That firm would earn fees instead of the bank. No getting around the fees-but their fixed costs of operation might be less so fees might be cheaper.Next problem is the market. But, there are enough hedge funds out there like Citidel etc who can make markets. Auto Trade Systems are simple to build and as long as you can clear trades with the OCC you are good to go.

        1. awaldstein

          thanks for this.i don’t really need blockchain to do this do I?

          1. pointsnfigures

            Nope. It might make it easier to organize and keep track of though.

          2. awaldstein

            That is how I understand it;

  7. Girish Mehta

    Not commenting on Spotify.While a direct listing would help address the first day pop accruing to IPO institutional investors, the bigger issue for the average small/retail investor presently is that they don’t have the “runway” left for serious long-term gains (over >10 years) from investing in the typical tech company after it goes public.Over the last few years companies are delaying going publc and listing at such valuations that most of the gains are now captured by the early investors/VC in the private stage of the lifecycle of the company.Mathematical Outcome – The kind of long-term returns that an Amazon (or a Microsoft before that) delivered to a small investor after listing are not possible in most cases.See the below excerpt from report by Credit Suisse (March 2017) -Amazon went public 3 years after founding, at value of $625 million (today’s dollars). Investors at IPO have made over 550 times their money.VersusFacebook – Public 8 years after founding at value of ~$110 billion. Market value up by ~ 3.7 times since listing.Mathematically impossible for post-listing Facebook to deliver the returns that Amazon gave after listing.https://uploads.disquscdn.c

    1. DJL

      Thank you! This is part of the data to support what I assumed (but could not prove) – that today the returns all go to the early investors and investment banks, while the “retail” investors pay the bill for everyone else. The more “unicorns” that go public the worse is it going to get.

    2. LE

      Amazon, Google, Facebook are three of the very lucky sperm. What did the data presented say about the probability of investments in IPO’s in any of those years or a range of years from, say, 1994 to arbitrarily 2010 perform?What if you held a basket of stocks for a long long time which is what you should be doing? And obviously in the case of Amazon it’s success was far from guaranteed it lost money for the longest time that I can remember and Bezos was considered at one point almost a con man in how he sold his dream.

      1. Girish Mehta

        When retail investors invest in the next IPO…they think they are investing in the next Google. But when retail investors invest in the next IPO, the truth is…they are simply investing in the next IPO.The mathematical outcome issue is now an additional challenge.1. First, the likelihood of a retail investor picking a massively successful IPO were low and huge winners are known in hindsight. That is the survivorship bias point you are calling out.What was different in the past was – Mathematically, serious wealth generating returns were possible for somebody after IPO.Maybe (probably) you were more lucky than smart if that somebody was you – but it was mathematically possible and it happened. This was true of Cisco, Microsoft, Dell…and later Amazon. Even with Google which IPO’d in 2004.2. What has changed now is that the value itself is being captured so much at the private stage before listing that mathematically it is not possible to generate those kind of huge returns after listing, EVEN IF you are both smart and lucky.Separately, to your other question – if you held a basket of stocks for a long time what happens ?Well, if you held the Dow (hypothetical since index investing did not exist then) for 16 years from 1958 to 1974, at the end of the period your return was negative. Or take another period – if you held the Dow from 1966 to 1982, at the end of the period, your return was zero (When Businessweek published the famous “Death of Equities” story). Especially bad when you consider it was a period of high inflation in the 70’s until 1981.For everybody who tells you that cannot time the market…the truth is that like many things in life, Timing is everything.Yes, you cannot time the market….but your timing matters.The idea that if you hold stocks for a long time, you walk away a winner….the guys who invested across the market in 1958 or 1966 and waited 16 years might disagree.

        1. Dennis Mykytyn

          Your numbers are wrong. It’s a common error made by journalists looking at the index and ignoring dividends (which historically is a major part of the total return from owning stocks). In your 2 examples, the total return with reinvested dividends for the DJIA for the years 1958 through 1974 is 154% or 5.6% annualized. For 1966 through 1982, 137% or 5.2% annualized.Not so bad huh?

          1. Girish Mehta

            Actually I do know that is the index without reinvesting dividends and I think most financial journalists know that. That often opens a different debate and I have seen the opposite point argued as well – is it correct to assume that an investor would have reinvested dividends through the period ? Some investors spend the dividend, some investors reinvest the dividend.I am stating what the index did…and like I said above, it is a hypothetical since index investing was not available to retail investors at that time anyway and a basket could have given a diferent return during that period. Instead of total return flat or negative, I should have said index flat or negative.I was comparing to the index levels quoted say for the hyper-bull 1995-1999 period (or the longer 1982-1999 bull market), where the index levels are quoted and reinvested dividends are not assumed either.

          2. Dennis Mykytyn

            But nobody invests in the index, ever! They get the index PLUS dividends. There is literally no way to get the zero returns you are quoting, even if you don’t reinvest the dividends but just keep them.Journalists are often math-challenged and lazy, and quoting the index is easier than calculating total returns.Ignoring dividends is like saying the return on 20 year Treasury bonds is zero, ignoring 20 years of interest payments, since you paid 100 and got 100 at maturity.

    3. PhilipSugar

      This is where making it so hard to go public has hurt the small investor. I used to go and be able to invest in Intuiut at $200mm valuation. Wonderware at $100mm, Azpen Tech at $100mmThose days are sadly gone.

      1. Girish Mehta

        Yes. Also, the number of available listed stocks in the US has shrunk dramatically – https://uploads.disquscdn.c…Number of listed companies has dropped by half from 1996 to 2016. Even compared to 1976, the number is lower in 2016…while GDP has tripled during the period and market capitalisation as % of GDP has gone from 47% to 136%.Materially changes the nature of an investor’s opportunity set.Source: The Incredible Shrinking Universe of Stocks, Credit Suisse, March 2017.

        1. Sudha Lakshmi

          The problem is even deeper. Not only are there fewer IPOs – and both as a result of this and as a result of M&A activity – far fewer public listings overall. Companies also float a far smaller percentage of their shares when they first go public. (After all, these are companies that, to use Fred’s words, “don’t need capital but want a public stock.”) Together with the growing phenomenon of share buybacks, this means that public investors hold, in percentage terms, smaller stakes in public companies than they used to – and this, even as the number of public listings has itself shrunk. It’s a very bad situation for investors in the public markets.

          1. ShanaC

            This can’t be good for corporate governance. What’s the point of going public if you also don’t want to answer to public market governance?

          2. Sudha Lakshmi

            Indeed, what’s the point of going public without the appropriate governance structures? But in this case, though, Spotify *is* committing to be a public company, with most of what that entails: disclosure, reporting etc. The only thing they don’t want to do is raise capital at their IPO. As far as I can see, the main issue here is that certain intermediaries – investment banks in particular, who would otherwise underwrite the offering – no longer have a role to play. And the concern that this presents is that research and analyst coverage, which is usually subsidized by the commissions for underwriting (and later, market-making), might well be lacking for companies like this. This could give rise to informational asymmetries here that seriously disadvantage ordinary public investors – that’s my main worry.Frankly, I’m a lot more concerned about corporate governance issues for a company like Snap, which did raise money at its IPO, but by issuing a class of shares with no voting rights whatsoever! That’s very, very troubling to me from a corporate governance point of view.

        2. PhilipSugar

          Great data. Agree 100%

  8. JMS

    I’m concerned by your comment, Fred, that “we don’t need IPOs to raise money anymore; private markets work great for that”Public markets have been, or rather had been, a democratizing wealth builder whereby the American middle class could invest in and profit from the dynamic growth of the nation’s companies. Starting with the disappearance of smaller investment banks who catered to small IPOs, and on to never-ending private funding, it seems this is no longer the case and the vast majority of Americans are shut out from these investment opportunities. What are your views on this observation vis a vis wealth disparity in the US?

    1. David C. Baker

      This is interesting to me, too. Will it further or reduce the distribution of wealth?

  9. Benjamin Adeneye

    Interesting stuff, i totally agree with fred. It will be interesting to see some big companies try this route. However, as pointed out by @asparish:disqus maybe there are some inherent issue with the business model.

  10. Dennis Mykytyn

    You don’t need underwriters to “make a market” anymore, that is mostly done by computers at both big brokers and HFT shops, with the volume of trading I’d expect Spotify to do daily, everyone would be in there, so spreads will be low.Same with research. It is illegal to tie research to underwriting fees anyway. I can pretty much guarantee that any large multi-billion DPO (like Spotify) will generate lots of major brokerage research, even without underwriting fees. Smaller DPOs are a different story and could be ignored for years.

  11. Adam Sher

    Spotify is another company that struggles to find a long-term solution for earning money. Those problems will be highlighted by a road show and substantial analyst coverage. Companies that have no path for profitability should be discouraged from spreading that risk to the public markets.

    1. LE

      In this case a ‘dpo’ is a way to keep down the amount of public scrutiny that would keep away some potential ‘marks’ that might buy the stock.http://www.digitalmusicnews…I don’t know what the latest data is but found this:The next step is a massive Wall Street IPO, one that could generate billions in fresh capital. But here’s another problem: analysts don’t think Spotify will ever reach profitability, at least without drastic changes to its core business model. “Their operating and net losses were both bigger in 2015 than 2014, and that’s a bad sign for future profitability,” Jan Dawson of Jackdaw Research told Mashable.Even if the numbers have changed my point still stands ‘way to keep down the amount of public scrutiny…’.Edit: Dennis Mykytn makes a good point (if true) which is why I don’t do this type of investing. Lack of information that could give me an edge.

      1. Adam Sher

        When I read “dpo” my brain reads ‘dope.’

    2. Dennis Mykytyn

      Disagree on Spotify. They are very well-situated to make tons of money in the long term. Bad label deals, made when they had no leverage, are being renegotiated now that streaming is the highest source of revenue to labels and Spotify has much better leverage to get fairer deals.Longer term, labels will gradually disappear, as there will be little need for them, and Spotify will release songs directly for major artists. Higher payouts to artists, bigger margins for Spotify, only losers are the labels.

      1. Adam Sher

        That was more likely to be true before Apple, Google, and Amazon entered subscription streaming services. Music streaming is a loss leader for all of these companies; however, all of them except for Spotify have the balance sheet to see this through to some point of profitability (e.g. Microsoft and Xbox).It is more likely that someone will acquire Spotify before it sniffs at profitability.

        1. Dennis Mykytyn

          They are loss leaders because they have way fewer subscribers. Only Spotify has 50 million subscribers, paying $500 million PER MONTH in subscription fees. While Apple Music claims they have 20 million subscribers, I can tell you from my label streaming revenue that Apple is way less than 10% of Spotify in streaming revenue, so be dubious about Apple claims. Spotify will likely add more paying subscribers in 2017 than all of the other services combined.

          1. Adam Sher

            That’s a high MRR to lose money on. Maybe they need to drop free service, and reduce their infrastructure costs that are associated iwth non-subscribers. Amazon is known to undercut pricing to put competitors out of business (e.g. Diapers.com). Having lower market share does not mean those companies are not competitive in this space.

          2. Dennis Mykytyn

            I am curious why you assume Spotify is still losing money? Yeah, they lost $200 million on $2 billion of revenue in 2015. But with revenue likely to be $5 billion or more this year, it is entirely possible their losses are shrinking, and they may even cross over to profitability.And since the new Universal Music deal reduces their payout rate as they hit subscription targets, so there is now a clear path to profitability.

      2. Salt Shaker

        Consolidation is the only way these companies survive. Currently industry way too fragmented. The big boys (Amazon, Apple, etc.) have the potential to choke the standalones, the opp isn’t true however. Also, it’s a lot easier and more efficient to grow a sub base via acquisition than to do it organically.

        1. Dennis Mykytyn

          Fragmented? Spotify has more paid subscribers than all the other services put together. How is that fragmented? And their margin over the field is growing bigger, they added 20 milion in the last 12 months, it took Apple 18 months to get to 20 million and they probably outspent Spotify at least 2 to 1 in marketing.We have reached a tipping point, streaming is dominant and not only is Spotify growing, their time to add subscribers is shrinking. Took Spotify over 6 months to go from 30 to 40 million, but less than 6 months to go from 40 to 50 million. Next 10 million will take even less time.There is no need to have more than one paid music subscription, and so far Spotify is winning the war. Will someone buy them? Maybe, but not because their model is failing, but because it is succeeding.

          1. Adam Sher

            Any metric of a successful business or investment I’ve used involves positive cash flow.

          2. Dennis Mykytyn

            I tend to agree with you on that, EXCEPT for tech companies.AMZN is now worth over $400 billion, with a history of lousy cash flows until recently.

          3. Salt Shaker

            Nothing proprietary about Spotify. Pandora, for example, has more subs but has been challenged both to convert subs from free-to-pay (where the margins lie) and in securing international rights fees. Amazon, GOOG, Apple could seriously challenge Spotify by cutting their sub fees and margins to drive market share w/ out consequence, as streaming music is fundamentally a pimple for each. As a standalone, Spotify (and smaller services) are vulnerable, although w/ a roughly $8B valuation and a high debt load not too many can afford to indulge. A classic example of where the public markets potentially can “out” a company and its financials. Company shows solid top line, is losing lots of money, and has zero diversification.

          4. Dennis Mykytyn

            It’s $10, nobody is going to give up Spotify to save $2 or even $5. Hell, Yahoo Music is basically free and yet usage is declining as the kids who formerly used it for all their music convert to paid Spotify subscriptions. You can make the same argument about Netflix, yet it is doing just fine as an independent and dominates the on-demand streaming of video. Apple, Amazon all gunning for them but ask any 20-something what they use, the answer is Netflix.Totally disagree about you “nothing proprietary” statement. Spotify playlists are awesome, they can drive thousands of dollars to small bands, millions to big artists (and guess what, the idiot artists who take the money from Apple for a short term exclusive lose it in the long run as Spotify leaves them off the playlists with millions of followers). Spotify also has amazing and deep data, they design custom playlist for me (I have 6 “Your Daily Mix” custom playlists they put together by genre that just nail it for me). Their “Discover Weekly” playlist is also custom for me. Other services mostly have generic “radio” services that are the same for everything.Netflix is worth $62 billion and will have revenue of $11 billion this year, Spotify $5+ billion, and Spotify is growing revenue much fast than Netflix and will eventually overtake them.NFLX is valued at 6x revenue while Spotify is valued at 1.5x revenue and is growing faster. yes, NFLX is more profitable, but I am telling you, the changes made in the Universal deal are going to drop right down to the bottom line for Spotify and as they scale profits will follow.Google music is dead in the water, Apple is maybe doing ok, but at tremendous losses, Amazon is going nowhere. There will be one winner in music streaming, and at the moment Spotify has what seems to be an insurmountable lead.

          5. Salt Shaker

            You’re comparing silos. The music and entertainment industry is migrating to bundles. Look at the investment in original programming being made by Amazon, Netflix, Apple, etc. Amazon can offer and bundle a FREE streaming music subscription w/ Amazon Prime. That’s a strong value prop to drive conversion. They’ll make up the revenue on a few orders. I’m honestly not knocking Spotify as a service. It’s a very good service and, as you note, has a sizable premium sub base. My issue is whether they can long term do it alone vs. being housed within a larger entertainment entity. I’m betting on the latter.

          6. Dennis Mykytyn

            I’d argue exactly the opposite, the media industry is moving AWAY from bundles. Look at cable TV. Nobody wants to pay for services they don’t use.Spotify is becoming like Netflix, next step will be signing artists to release original music directly. Why give 50% (or more) of your revenue to a label? On top of what streaming services get, the artist is likely to end up with maybe 10 or 20% of total revenue. When Spotify starts cutting out the labels, artists will see a huge jump in actual payments to band members.Right now, Spotify has playlists that are more important than radio play. Small indie bands can literally make thousands of dollars more by being added to a good playlist. Bigger acts can make hundreds of thousands more. No other service can do that, except Apple to a smaller degree. Amazon Music is literally a nobody.

          7. Salt Shaker

            Yes, w/ cord cutting you can now buy some nets and other packages OTT, but the cable industry isn’t gonna kill their biz model and debundle anytime soon (though it may be inevitable.) Too much at stake. Any loss in MSO sub revenue presumably can be offset w/ digital services. Remember, they’re fundamentally monopolies w/ a wire into the home. In many markets, freedom of choice doesn’t exist like w/ music streaming services. As I’ve noted, Spotify is a great service, though their financials aren’t particularly healthy and are tied to a pretty lofty valuation. Amazon or GOOG could easily afford to ramp up their music offerings to Spotify’s level w/ a blink of an eye. I see Spotify going public with share pricing settling at realistic (read: accountable) levels, and then being gobbled up by one of the big boys. I don’t think they’ll be acquired pre-IPO. But hey, wtf do I know:)

          8. Dennis Mykytyn

            You are basing your comments about their financials on 2015 numbers. See my other post about that.I guess my main point about Spotify is not getting across to anyone here. It’s not just about access to music anymore. It’s the whole infrastructure of curated playlists, friend’s playlists, etc. Nobody else (except Apple to a smaller degree) has anything like it.When music is a commodity, value add is important. Google and Amazon add nothing, and will go nowhere. Only real competition is Apple, and they are falling behind in the subscriber race to Spotify.

    3. Simon Edhouse

      I think this is true.. Spotify would certainly have gone down the typical IPO route if their ongoing narrative was more bullet proof.

  12. Frank W. Miller

    I saw something inspiring this on one of the comments the other day. How about a startup whose function is to manage blockchains for companies fundings? Each company starts a blockchain when it files for company formation and it uses that as a market for financing throughout its history. This automates what angels, and VCs, and wall street does now, taking away their large overhead costs and, ahem, their control. There’s an entity that has oversight (which is my big beef against fully distributed value) and it functions just like other assets. The startup would be like a financial company that managed mutual funds but would have final control over all the block chain transactions for each of the companies. There’s already something like this out there right?

    1. mplsvbhvr

      Not sure, but sounds like you may be talking about Iconomi or Melonport based on the Ethereum platform…

  13. Salt Shaker

    In a way, direct listings would be quite dangerous for non-savvy investors who are ill equipped to gauge company fundamentals and potentially could get drawn in on hype and hype alone. Retail investors gen aren’t afforded participation in IPO’s, and opening the flood gates def delivers opportunity for them, but with inherent (and perhaps greater) risk. Stick to index funds, it’s safer and far more stable.

  14. Kirsten Lambertsen

    Related: https://www.recode.net/2017…Twitter is considering a shareholder proposal to go co-op (user-owned).

  15. Vendita Auto

    Sooo dislike the long comments “S=k log W”analogy GirishMehta@ I know but a glass (3) is good for claret/y !!

  16. JaredMermey

    Maybe some laws or something, but why not turn one’s cap table into a blockchain and let it trade there?

  17. Sudha Lakshmi

    Of course Google tried to do something very much like this at their IPO, by using an auction to sell their shares directly to investors, effectively bypassing the underwriters. In the end, though, they seem to have gone for more of a hybrid approach, by bringing on several underwriters and giving in to their demands to “underprice” the stock relative to price revealed by the auction. http://www.cnbc.com/2014/08

    1. Sudha Lakshmi

      OK, now that I’m reading the details of what Spotify wants to do more closely, it’s not that they want to do a direct public offering, sort of like Google originally intended. They don’t want to do an offering at all – i.e., they don’t want to issue any new shares and take the dilution that comes with that. They simply want their previously issued shares to start trading publicly on the secondary market. In other words, they’re not even making the pretense of going public for the sake of raising capital; they’re going public purely for liquidity and, to a smaller extent, price discovery. Wow, that is indeed novel!

      1. PhilipSugar

        I love it. I think one of the biggest problems is over raising money and then have management incentivized to spend it versus providing a liquidity event once you are profitable.

        1. Sudha Lakshmi

          I suppose it really depends on what the company spends it on, doesn’t it? If a company raises money at an IPO to spend on growth – as companies used to in the not-too-distant past, when they went public at a much earlier stage – that’s a very good thing: for the company, the public-market investors and also the broader economy. But if, like most tech companies that go public now at gargantuan valuations, the goal of an IPO is not really to raise money, but simply to provide an “exit” – a liquidity event – for founders, investors and early employees, I’m not really sure how good that is for everyone else. On the one hand, I guess I’m glad Spotify is at least being straightforward about their reasons for going public – purely for liquidity – and they’re not pretending it’s also to raise capital. On the other, I do think this is symptomatic of a terrible trend (Spotify is just being more honest about it), where more and more companies go public purely to provide an “exit” for some, without also providing a meaningful “entry” for others, that’s disastrous for our public markets and our economy as a whole.

          1. PhilipSugar

            See my point on at where you go public. In my very limited mind you should be able to hit breakeven at $20mm at the most. Then your investments in yourself should have payoff in less than a year and you really can’t do more than one or two per year.

          2. Sudha Lakshmi

            Insisting on breakeven at $20mm seems far too stringent to me. I’m sure there are companies for which that would make sense. But if we want to have companies that are much larger than a “lifestyle business,” that number is far, far too low, IMO. Don’t get me wrong – I want startups to be more disciplined and have some focus on achieving profitability within a reasonable time frame – but I also don’t want to fetter their growth by requiring that they hit breakeven at $20mm. Stability is important for a public company, but so is size and scale!

  18. Lapakko

    We don’t have a use case yet but the platform I’m currently working for does have the capabilities to execute a direct listing. Here is the basic information but I’d be happy to connect with anyone interested knowing more. https://markets.funderbeam….Also, HELLO @philipsugar:disqus 🙂

  19. heuristocrat

    People have tried. Reflecting on it more I think for this to happen we need to discard our definitions of what “making markets” and “research” are about. As they are today they are bespoke and expensive. I pains me to say it but traditional stock research matters less today than it did 20 years ago. (Vastly fewer stocks is perhaps part of the reason.)Maybe direct markets will work without market makers – they will be some form of pure P2P/blockchain kind of thing. And maybe “research” will not be about digging into business fundamentals and building models but rather an index of online sentiment, algorithms to compute basic factors like business momentum and valuation and technical indicators around price and volume. These things can be done with very low to no cost.

  20. billyjoerob

    There are things called reverse mergers, merging with a public shell company.

  21. LE

    To that I will repeat what @pointsnfigures:disqus said in his comment below:I 1000% agree with you that one reason to IPO is the employees, early investors, small investors a chance at getting liquid. They committed their capital, and their human capital to a risky enterprise and deserve the chance to cash in.By the way it’s easy to snow employees in order to keep them for the long term. Various ways to do this. I am reminded of someone I hired way back that came and wanted a piece of the business after working roughly 3 months. I could have easily kept him on ice for a long time with promises. Instead I said right then ‘you will never own a piece of this. I will pay you more and give you all sorts of things but not ownership’. He was very valuable no question and I didn’t want to lose him. But I was not willing to give up ownership or even promise (as most people might have) some event in the distant future that I could always figure out a way (and believe me if anyone could it’s me) to kick the can forward. He did end up staying until I sold the company and worked for a bit for the new owners prior to founding his own competitor.

  22. awaldstein

    Yup–and it is a burden no matter how you slice it.