Weekly Update #213: Spotify getting closer to a Direct Listing

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Hello Investors,

Spotify getting closer to a Direct Listing

Spotify, the music-streaming service with 60 million paid subscribers, is reportedly working with the SEC to get approval for a direct listing. Here are some things to watch for:

  • A "direct listing" is when a company begins trading on a public exchange but does not offer new shares to the public via an Initial Public Offering (IPO)
  • A direct listing would allow Spotify to increase brand awareness, and liquidity, but without taking on additional dilution from an IPO (note: Spotify most recently raised $1 billion in convertible debt in March 2016)
  • The SEC also looked into Google's unconventional Dutch Auction IPO in 2004
  • For pre-IPO shareholders of Spotify, the direct listing would likely mean that shares would be tradable immediately rather than having to wait 180 days in relation to an IPO lockup
  • Spotify would likely look for an institutional investor to "support" the stock once it begins trading (in an IPO scenario, new institutional investors would typically hold their new position in the company, thus reducing near-term stock price volatility)
  • Spotify's largest current investors include TPG, Dragoneer Investment Group, Baillie Gifford and TeliaSonera AB
  • Assuming approval, a direct listing could be completed by "late this year or early next year on the New York Stock Exchange,", according to Bloomberg

In other news...

Phil Haslett
Founder + Head of Investments, EquityZen


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