Why is this IPO different?

 As mentioned earlier, Spotify is taking a different approach to the standard IPO, not releasing any new shares to the public market while betting that potential investors won’t be put off by a direct listing of existing shares.

In fact, Spotify’s IPO is so unconventional it hasn’t hired a team of bankers to underwrite it, instead opting to pay only advisory fees to investment bankers for a paltry $30m. In comparison, Snap hired a total of seven banks, including Goldman Sachs, JP Morgan and Morgan Stanley, for a cost of $100m to underwrite its 2017 IPO.

Why can it do this? Because the company is directly listing existing shareholders’ shares, it needs only to make sure that there is demand for the shares at a price that the current shareholders are happy to sell at. This only requires a broker to analyse supply, demand and price on the day in order to keep any liquidity issues at bay.

Its shares won’t be subject to a traditional ‘lock up’ period in which initial institutional investors are obliged to hold shares for a given period. This was an evident issue for Snap, as many institutional investors, including some underwriters, chose to dump the stock after an unfavourable trading period following the company’s IPO.

There are, of course, still risks. Spotify’s management are hoping the unconventional listing will prove popular amongst public investors, although some are wary that a lack of institutional investment will hurt confidence.

Will this be the way forward from now on?

Depending on how well received the Spotify IPO is, it could inspire a range of other tech unicorns to follow suit.

Privately-held Tech unicorns, typically young companies, have found that raising money through rounds of private fundraising – also known as venture funding – has proved to be generally hassle-free and provides all of the benefits that a public listing would, without having to chance the wider world of public trading.

This has dampened the eagerness of many CEOs – who also tend to be the founders of these large tech companies – from risking a public listing which would allow investors from outside of their established relationships and funding bases to hold sway over their company. This has been cited as a reason that founders of both Uber and AirBnB have been dissuaded from going public at an earlier date, especially after Snap’s 2017 IPO saw initial gains post-IPO give way to significant selling, which accelerated after the ‘lock-up’ period ended.

A successful listing for Spotify, however, could change the tune of unicorn CEOs. By proving that they can indeed list on public markets without having their businesses altered by outsiders and, most importantly, raising a greater amount of money than possible through private contributions, it could inspire a new age of IPOs.

There are 200 or so unicorns all eagerly watching the performance of Spotify’s IPO. The structure of the IPO could offer an attractive alternative to CEOs unwilling to risk turning their ‘brain-child’s into financial entities.

For examples of how you can trade the shares of a company following a public offering, a breakdown of IPO trading options, and how Accendo Markets can help you capitalise on these opportunities, turn the page.