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Buy DPO (Direct Public Offering) / Direct Listings at TD Ameritrade

Direct listings: an alternative to IPOs

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A Direct Public Offering (DPO), also known as a direct listing, is a way for companies to become publicly traded without a bank-backed Initial Public Offering (IPO). It's important that you understand the risks and opportunities of a direct listing, and do your research before investing.

What investors should know about direct listings

Direct listings are an alternative to Initial Public Offerings (IPOs) in which a company does not work with an investment bank to underwrite the issuing of stock. While forgoing the safety net of an underwriter provides a company with a quicker, less expensive way to raise capital, the opening stock price will be completely subject to market demand and potential market swings.

In a direct listing, instead of raising new outside capital like an IPO, a company’s employees and investors convert their ownership into stock that is then listed on a stock exchange. Once the stock is listed shares can be purchased by the general public and existing investors can cash out at any time without the ‘lock up’ period of traditional IPOs. Coinbase, Slack, and Spotify are recent examples of companies that have opted to skip a traditional IPO process and instead list its shares directly on an exchange.

How to participate in a DPO

If you are already a TD Ameritrade client, you will be able to place trades as soon as the shares are available in the open market.

If you don’t have an account with us yet, you will need to open and fund an account.



What are the differences between a DPO and an IPO?

A DPO (direct public offering) and an IPO (initial public offering) are similar in that they are both ways a formerly private company can go public and begin to sell shares of stock on the open market. While an IPO is the traditional way companies have gone public in the past, DPOs are increasing in awareness and popularity as large companies like Spotify have chosen to go public this way.

Unlike an IPO that issues pre-market IPO shares, a Direct Public Listing will simply start trading on the exchange upon market open, with privately-held shares from existing investors. This allows companies going public via a DPO to not dilute the value of shares in market, and gives early investors a way to sell their shares more quickly than the IPO process, where there is a typical "lock-up" period as new capital is first raised before existing shares are able to be sold.

Going public via a DPO is traditionally faster and cheaper than going public via an IPO. In a traditional IPO, one or more investment banks serve to underwrite the issuing stock. In this role, they manage several aspects for an IPO that add cost to the business and time to go public, but also security to the process. When a company goes public via an IPO, the underwriters distribute shares among select brokerages who then impose restrictions on who is allowed to participate in the IPO. This can make it hard for all investors to gain access to IPOs.

With DPOs, there is an even playing field, with stocks being listed on the market for everyone to access and trade. The availability of shares is dependent upon early investors, while the price is dependent upon market demand. This makes a DPO a potentially riskier route than an IPO as there could be more volatility and market swings.

What is the importance of an underwriter for an IPO?

In a traditional IPO, one or more investment banks serve to underwrite the issuing stock. In this role, they manage several aspects for an IPO.

  • Setting up roadshows to court investors to raise capital for the offering and divvying up IPO shares to other financial institutions.
  • Filing a registration statement with the SEC.
  • Setting the IPO price and providing a safeguard if demand is weaker than expected.

Unlike IPOs, direct listings do not have an underwriter.

How are the price and number of available shares determined for a direct listing?

A predetermined number of shares and initial pricing are not available with a direct listing. On the day of the Direct Public Offering (DPO), the stock will have the ability to start trading, but is subject to the number of shares company employees and investors choose to list on the market. This also means that pricing is dependent upon market conditions and demand.

Are there eligibility requirements or an indication of interest form to fill out to participate in a DPO?

When a company directly lists on the open market, there are no eligibility requirements or forms to fill out. The only requirement is to have sufficient capital in your account to purchase stock.

What other companies have gone public via a DPO?

Traditionally, small companies in industries such as food and biotech have gone public via DPO.

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Where can I learn more about investing in a direct listing?

Looking to Get In on the Ground Floor? Unpacking IPOs, DPOs, and SPACs | Article

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