Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Direct Listings Are Replacing Traditional IPOs for Founders
Transcript
- Lucas: So there is this subtle but accelerating shift happening in how companies go public—and it's not about SPACs anymore. It's about direct listings, and they are quietly becoming the preferred route for a certain kind of founder. Luna: You mean skipping the banks and just listing shares directly on the exchange? That's been around for a while, but it feels like it's finally getting serious traction. Lucas: Exactly. And the numbers back it up. Since 2018—when Spotify did the first major direct listing on the New York Stock Exchange—we've seen a handful of high-profile companies follow suit: Slack in 2019, Palantir and Asana in 2020, then others like Roblox in 2021. But what's interesting is that the pace is picking up. In 2025, we had more direct listings than in the previous three years combined. And as of June 2026, we're already past that pace. Luna: So what's driving founders to choose this path over a traditional IPO? I mean, the conventional wisdom has always been that you need an underwriter to build the book and stabilize the price. Lucas: Right. And that's exactly what they're questioning. The argument is: why pay 3 to 7 percent of the entire offering to investment banks when you can let the market find the price? For a company raising, say, 500 million dollars, that's 15 to 35 million dollars in fees—gone, no value created for the company itself. Luna: That's a huge saving. But you lose the underwriter's price support—the so-called greenshoe option that lets them stabilize the stock if it drops. Isn't that risky, especially in a market like we're seeing this week? Lucas: It is. And that's the tradeoff. Look at the last five trading days—Apple's down 3.5 percent, Microsoft down over 5 percent, Meta down about 3 percent. The S&P 500 has been choppy. In a traditional IPO, the underwriters would step in and buy shares to keep the price from cratering. With a direct listing, there's no safety net. But founders who are going this route are betting that their stock is strong enough to find its own level. Luna: And they also get immediate liquidity, right? No lockup period for existing shareholders, unlike in a traditional IPO where insiders are locked up for 180 days. Lucas: That's one of the biggest attractions, actually. In a traditional IPO, early investors and employees typically can't sell for six months. In a direct listing, shares are tradable from day one. That's a massive difference for founders and early backers who've been waiting years for liquidity. It also means the market price from day one is a true reflection of supply and demand, not a manipulated price set by bankers. Luna: But there's a catch—you can't raise new capital in a pure direct listing. The early ones were all secondary sales, just existing shares. That changed in 2024 when the SEC allowed primary direct listings, where companies can issue new shares and raise money at the same time. But even then, the capital raised is usually smaller than a traditional IPO. Lucas: That's a great point. The primary direct listing is still relatively new. The first one was by a company called Pylon in 2024—they raised about 200 million dollars. But compare that to a traditional IPO like Arm Holdings in 2023, which raised nearly 5 billion. So if you need a huge capital infusion, the traditional route might still be better. But for companies that are cash-flow positive or don't need a lot of new capital, the direct listing is very appealing. Luna: And there's also the issue of volatility. Without price stabilization, you can get these massive swings on day one. We saw that with Palantir—it opened at 10 dollars, shot up to 15, then dropped back down. That can spook retail investors. Lucas: Yeah, but on the flip side, retail investors actually get access to the same price as institutions. In a traditional IPO, the big funds get shares at the offer price, and retail often pays a premium on the open. With a direct listing, everyone's on equal footing. That's part of the democratic appeal, and it's something the SEC has been pushing for. Actually, this connects to something I wanted to mention. Luna: Go ahead. Lucas: If you find these conversations about how founders are reshaping the public markets useful for what you're building or running—well, a handful of listeners chip in monthly through Buy Me a Coffee dot com slash fexingo, and that's literally what funds making this many of these episodes possible. No ads, no sponsors, just listener support. So if that's something you value, there's a link in the show notes. Luna: Yeah, it really does keep us independent. And honestly, it means we can do deep dives like this without anyone telling us what to cover. So thanks to those who already do. Lucas: Alright. Back to the direct listing mechanics. One thing that often gets overlooked is the role of the designated market maker—the DMM. On the NYSE, for example, the DMM is required to maintain an orderly market, stepping in to buy or sell to smooth out huge gaps. That's not the same as an underwriter's greenshoe, but it does provide some stabilization. Luna: So it's not completely unguided. There's still a human in the loop on the exchange floor trying to keep things sane. But that's a far cry from the full price support of a syndicate of banks. Lucas: Exactly. And the banks are still involved—they serve as financial advisors to the company, just not as underwriters. They get a much smaller fee—maybe 1 percent instead of 5 percent—and they don't take on the risk of buying the shares themselves. So the economics shift dramatically. And that's a big reason why some of the big banks have been lukewarm on direct listings. They make less money. Luna: But for founders, that's a feature, not a bug. You're keeping more of your company's value and giving early investors liquidity sooner. So who is the ideal candidate for a direct listing? What kind of company should consider this? Lucas: I'd say three things: first, strong brand recognition—you need enough public awareness that retail and institutional investors will find you without a roadshow. Second, healthy financials—you don't need the capital raise, or you can raise it privately. And third, a shareholder base that wants liquidity without a lockup. Companies like Spotify, Slack, Palantir—they all had these characteristics. And interestingly, the recent trend is that even larger companies are looking at this. There was talk about Stripe considering a direct listing before they chose a traditional IPO. Luna: So what does this mean for the traditional IPO? Do you see it becoming a niche product for companies that really need the capital and the price support? Lucas: I think it's heading that way. The traditional IPO isn't going away—especially for biotechs or companies in volatile sectors that need the stability. But for mature tech companies with strong fundamentals, the direct listing is becoming the default option. And as more companies do it successfully, it creates a roadmap for others. We're also seeing hybrid structures—some companies do a direct listing with a concurrent private placement to raise capital. That's a trend to watch. Luna: And the SEC seems supportive. They've been modernizing the rules to make direct listings more viable. Do you think we'll see regulatory changes that further tip the scales? Lucas: I do. The SEC has been on a push to make the public markets more accessible and less expensive for issuers. Direct listings fit that narrative perfectly. I wouldn't be surprised if in the next few years, we see the SEC propose rules that make it easier to do primary direct listings, or even require some form of price discovery that reduces the need for underwriters. But there's pushback from the banking lobby, so it won't be a straight line. Luna: So for a founder listening today, what's the one takeaway? Should they be thinking about a direct listing for their exit? Lucas: I'd say: if your company is already generating revenue, has a recognizable brand, and you don't need a huge cash infusion from the IPO, then yes—seriously consider a direct listing. Do the math on the fees you'd save, and weigh that against the risk of volatility. And talk to an exchange—both the NYSE and Nasdaq have dedicated teams for direct listings now. The infrastructure is there. The question is whether your company is ready for the spotlight without a safety net. Luna: And if you are, you might just save millions and give your early team the liquidity they've been waiting for. That's a powerful incentive. Lucas: It's a shift that puts more power in the hands of founders and investors, and less in the hands of Wall Street. And that's a trend we're going to keep watching closely.