The New Rules of the IPO

Three Ways to Take Your Company Public Without a Traditional IPO

Dutch auctions? Reverse mergers? Direct listings? The pros and cons of IPO alternatives.

This story is part of The New Rules of the IPO, a multi-part special report.
Illustrations: James Clapham

A graveyard of hyped unicorns has some companies canceling or postponing their IPOs and considering other alternatives for raising money and getting that coveted ticker symbol. Here are the other routes companies are taking to go public — and how they stack up to a traditional IPO.

IPO

First, let’s look at the Wall Street status quo. An IPO is how virtually every big publicly traded company gets on stock exchanges like the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (Nasdaq). (Another stock exchange may be coming soon.)

The IPO has been around since the dawn of the stock markets, but after a peak of more than 300 IPOs a year in the ’90s, we’ve seen close to 100 IPOs per year, on average, over the past two decades. Part of that is due to regulatory changes that allowed companies to have a larger number of private shareholders (up to nearly 2,000) and privately raise larger rounds of capital (upwards of $500 million to $1 billion) without being forced to go public.

With an IPO, a company steps through a series of hoops that can last several months to years. A company typically hires an investment bank to guide it through the process, in exchange for a fee of about 4–7 percent of the money raised. That includes helping the company prepare an S-1 (a prospectus required by the SEC that provides a deep dive into the company’s financials, future plans, and its team) and lining up a one- to two-month-long roadshow to pitch investors on the company. Those investor meetings gauge investor demand and help bankers determine an offering share price.

Tradition also states that companies adhere to a “lockup” period of 90 to 180 days…