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0 pointseganist8y ago0 comments

Well, that and aid with the capital raise. In this case, my understanding is there wasn't a capital raise so much as there was an opportunity for existing shareholders to liquidate their positions.

Edit: yep.

> The digital music company isn’t selling its shares on the stock market, meaning the company isn’t raising any money today. Instead, the event known as a “direct listing,” is a collection of transactions from existing shareholders (like employees and investors) selling shares directly to stock market investors. It took a while for the market makers to sort this out.

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chimeracoder8y ago· 2 in thread

> In this case, my understanding is there wasn't a capital raise so much as there was an opportunity for existing shareholders to liquidate their positions.

Yup, Spotify was under contractual requirements to go public, due to the terms of their last fundraising round (or else they had to pay incredibly stiff penalties).

Underwriters serve a role for most IPOs, but Spotify is different because their listing wasn't about raising money - it was about fulfilling their contractual requirements to provide liquidity on public markets so that they could avoid the penalties they would otherwise face.

JumpCrisscross8y ago

> Spotify was under contractual requirements to go public, due to the terms of their last fundraising round

Spotify was under obligation to do an IPO. Part of the motivation for this structure was avoiding that penalty language.

chimeracoder8y ago

> Spotify was under obligation to do an IPO. Part of the motivation for this structure was avoiding that penalty language.

To be specific: they did a DLP, not an IPO. Underwriters make sense for IPOs, because the company is raising money. There's no point to an underwriter in an DLP, because the company isn't raising money.

They were not under requirements to hold an IPO; they were required to provide public liquidity to their shareholders. That's why they chose a process that involved no underwriting. And that's also why their case doesn't really provide any generalize lessons, because those types of terms are incredibly rare in growth-stage venture financing.

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