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Going Public in a Post-Spotify World

Traders Magazine Online News, June 14, 2018

Jason Paltrowitz

More than 1,450 companies globally IPO’d in 2017 -- the busiest for new listings since 2007. Yet while there were the most IPOs in a decade worldwide, U.S. companies, with annual sales of less than $500 million, may believe they are too small to go public. This may be a contributing factor to widely-cited data indicating the number of IPOs in the U.S. has fallen by about half over the past 20 years. There are viable, alternative paths to going public for small- and micro-cap companies without incurring the costs and complexities of the overhyped IPO. While it wasn’t without hype and high-expectations, Spotify’s direct listing on the New York Stock Exchange shines a spotlight on non-traditional, but reliable approaches to entering the public markets.

                  The Slow PO

In contrast to the traditional initial public offering (IPO) process and more aligned with Spotify’s approach to the public markets, a Slow PO on OTC Markets enables companies to enter the public markets by making their previously-restricted shares available for public trading by brokers on the OTCQX® Best Market and OTCQB® Venture Market.

The Slow PO is similar to a “direct listing” on an exchange, where a company goes public without raising any funds and doesn’t engage underwriters, as used in a conventional IPO. With music streaming service Spotify’s direct listing, there was no road show; no underwriters; and no stock lockups for SPOT’s shareholders. This was the first direct listing on the NYSE and another sign of major changes in equity capital markets. After two months of trading as a public company, most capital markets professionals agree that the Spotify (NYSE: SPOT) listing was a successful transaction.

With no IPO order book, Spotify’s direct listing enabled all investors to buy shares on day one as a public company -- leveling the playing field among institutional and retail investors. The direct listing also put no restrictions on SPOT’s existing shareholders who wanted to sell shares immediately. Typically, with an IPO, existing shareholders may be restricted from selling for up to six months or longer. 

For years, companies have been using the Slow PO path to go public on OTC Markets. Some examples of using the direct-to-market route on OTCQX include the Bitcoin Investment Trust (OTCQX: GBTC) and numerous community banks around the U.S.

GBTC, which invests exclusively in bitcoin and derives its value solely from the price of bitcoin, is one of the most successful examples of a “direct-to-market” transaction. New York-based Grayscale Investments, the sponsor of GBTC, recently launched the Ethereum Classic Investment Trust on the OTCQX market using a similar offering method. 

Community banks have also used the direct-to-market process to go from private to publicly-traded. The community banks achieve their goals of using their company shares to make acquisitions of competitors, expand their investor base, and provide liquidity for shareholders. There are 75 community banks currently trading on the OTCQX market.

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