{"id":135125,"date":"2022-04-20T00:00:00","date_gmt":"2022-04-19T23:00:00","guid":{"rendered":"https:\/\/gs:8890\/academy\/ipo-vs-direct-listing-what-you-need-to-know\/"},"modified":"2025-12-03T15:44:35","modified_gmt":"2025-12-03T15:44:35","slug":"ipo-vs-direct-listing-what-you-need-to-know","status":"publish","type":"post","link":"https:\/\/www.jpmorganworkplacesolutions.com\/uk\/insights\/ipo-vs-direct-listing-what-you-need-to-know\/","title":{"rendered":"IPO vs Direct Listing: What you need to know"},"content":{"rendered":"

Long gone are the days of the traditional IPO. Nowadays, there\u2019s multiple ways<\/strong> to join the public market \u2013 which can be overwhelming if you don\u2019t know which one is right for you.<\/p>\n

One route that has been growing in popularity over the last number of years is the direct listing<\/strong>. Although relatively new, this method has been used by companies, particularly those in the tech space, that want to avoid some of the red tape that comes with an IPO.<\/p>\n

Although direct listings could be considered easier in terms of what\u2019s involved, it\u2019s still a complex topic<\/strong>. So we\u2019ve taken a look at the two to find out how they differ.<\/p>\n

IPO vs Direct Listing: What are the main differences?<\/h2>\n

Firstly, IPOs are geared towards raising capital<\/strong>, and while it\u2019s common for companies going through a direct listing to raising capital either shortly before or shortly after the listing, it\u2019s usually not the main objective.<\/p>\n

With a direct listing, the focus is on giving employees liquidity<\/strong> for the shares they hold. When a company\u00a0goes through an IPO<\/a>, a new batch of shares are created which are made available to the public, but when a company opts for a direct listing, no new shares are issued. Instead, employees sell their shares directly to the public \u2013 hence the name \u2018direct\u2019 listing.<\/p>\n

If you\u2019re choosing to IPO, underwriters<\/strong> will play a huge role, whereas there is no underwriter involvement in a direct listing. This typically makes them a faster and cheaper option.<\/p>\n

However, one drawback is the lack of lock-up period<\/strong>. IPOs always operate with a strict lock-up period, where shareholders are prohibited from selling any of their stock. This protects the company share price as it prevents the stock market from being flooded with shares unnecessarily. While direct listings do have rules about how soon some corporate principals can sell their shares, ordinary employees can usually sell as soon as the listing takes place.<\/p>\n

What are the benefits of a direct listing compared to an IPO?<\/h2>\n

While they may not be for all companies, there are some clear advantages<\/strong> that make them suitable for some. With a direct listing, employees get liquidity<\/strong> on the first day of trading, which can act as an amazing boost for employee engagement.<\/p>\n

Direct listings are also an overall more transparent<\/strong> process than an IPO. As the price-discovery process is market driven, there is no guess work involved \u2013 which is an aspect of an IPO that can cause further complexity and may take up more time.<\/p>\n

Direct listings are typically\u00a0less costly<\/strong> than a traditional IPO and don\u2019t involve any further share dilution as no new shares are created, a situation which can be better for all shareholders.<\/p>\n

What are the disadvantages of a direct listing compared to an IPO?<\/h2>\n

If you\u2019re joining the public market with the goal of generating capital, a direct listing is not the way to go. As no \u2018new\u2019 shares are put up for sale, a company cannot raise funds. Further to this, as no new shareholders are added, a company must already have a large and diverse base of existing shareholders.<\/strong><\/p>\n

Since there’s no early price discovery system or book-building process, companies have no way of knowing where share prices will open. Likewise, they cannot get shares allocated to preferred investors or institutions. So although it may help to speed up the listing process, it creates a certain level of ambiguity<\/strong> around share price opening and allocation.<\/p>\n

The day-one trading for employees can be seen as a huge benefit, but having everything ready to go from the first day on the exchange is a highly time-consuming and complex affair<\/strong>. With an IPO, the lock-up period provides ample time to get prepared.<\/p>\n

Again, the ability for employees to sell shares freely on the public market can be viewed as a plus, but this does give employees the opportunity to sell a vast number of shares<\/strong> in a short space of time, which could be viewed as a downside. The freedom given to employees in the form of liquidity can be considered a benefit and for some, a disadvantage, depending on what way you look at it.<\/p>\n

What can you do to help your direct listing or IPO run smoothly?<\/h2>\n

Make sure to communicate<\/strong> with employees<\/a> and other shareholders about what’s happening, especially with their equity. You should try to explain it to them as soon as the equity plan is ready to go public<\/a>\u00a0because\u00a0many people are unaware of what they can and can’t do with their shares during a direct listing and IPO.<\/p>\n

Make sure there’s someone knowledgeable<\/strong> to answer their questions. Who should be part of the resource team? Include in-house leaders, outside legal counsel, and experienced equity compensation professionals<\/strong>\u00a0(like us at J.P. Morgan Workplace Solutions).<\/p>\n

The goal is for all members of your shareholder base to have a good, profitable experience should they decide to sell their stock, so create a dedicated email address and other direct resources to get accurate, fast answers straight to your employees.<\/p>\n

If you’re doing an direct listing or IPO, consider creating a written FAQ about timing, lockup periods, and other relevant guidelines. Inform and educate employees that they can’t sell immediately and will have to adhere to lockup periods (for an IPO) that are often 90 days long. It’s imperative to let employees know what they can and can’t do, how long they’ll have to wait before selling, and why those rules are in place.<\/p>\n

We can help you to go public<\/h2>\n

Looking to join the public market<\/strong>? Whether its an IPO, a direct listing, or another route, J.P. Morgan Workplace Solutions has helped companies from all over the world to go public. Get in touch with us today to learn more about how we can help you join the public market.<\/p>\n


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Long gone are the days of the traditional IPO. Nowadays, there\u2019s multiple ways to join the public market \u2013 which can be overwhelming if you don\u2019t know which one is right for you. One route that has been growing in popularity over the last number of years is the direct listing. Although relatively new, this […]<\/p>\n","protected":false},"author":3,"featured_media":172554,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[621],"tags":[549,722,723],"class_list":["post-135125","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ipo-uk","tag-equity-compensation-uk","tag-ipo-uk","tag-legal-uk"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.jpmorganworkplacesolutions.com\/uk\/wp-json\/wp\/v2\/posts\/135125","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.jpmorganworkplacesolutions.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.jpmorganworkplacesolutions.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.jpmorganworkplacesolutions.com\/uk\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.jpmorganworkplacesolutions.com\/uk\/wp-json\/wp\/v2\/comments?post=135125"}],"version-history":[{"count":0,"href":"https:\/\/www.jpmorganworkplacesolutions.com\/uk\/wp-json\/wp\/v2\/posts\/135125\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.jpmorganworkplacesolutions.com\/uk\/wp-json\/wp\/v2\/media\/172554"}],"wp:attachment":[{"href":"https:\/\/www.jpmorganworkplacesolutions.com\/uk\/wp-json\/wp\/v2\/media?parent=135125"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.jpmorganworkplacesolutions.com\/uk\/wp-json\/wp\/v2\/categories?post=135125"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.jpmorganworkplacesolutions.com\/uk\/wp-json\/wp\/v2\/tags?post=135125"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}