Direct listing – that's what is causing a buzz. After Swedish music streaming company Spotify's listing last year, Slack is the next big tech company taking the road less traveled. Stewart Butterfield, the founder of the American cloud-based real-time messaging and file sharing tool called Slack, which has developed a strong user base among businesses worldwide, has decided to take his company public – but it's not going to be an IPO.
Slack investors have chosen to forego Wall Street convention and trade existing shares directly with public investors on the New York Stock Exchange as Class A Common Stock under the ticker "WORK". The reference price has been set at $26, which is likely to value the company at about $17 billion.
There will be no fancy roadshow. There will be no additional fundraising or new share issuances. There will be no underwriting bankers attempting to woo investors. There will be no lock-in period. Rather than having the shares marketed and having the price set based on demand, a direct listing usually involves more affordable financial advisers who aid in the process of fixing the opening price.
Wall Street loves IPOs, but these IPOs can be expensive and take time. Spotify, for instance, spent about one-third lesser on its direct listing than it would have spent on a traditional IPO, and therefore, saved the company close to $100 million, according to a Fordham University study.
The questions is whether direct listing is a new precedent for Silicon Valley companies looking to go public?
When Spotify took this direction a year ago, the direct listing failed to live up to the fanfare around it. Only 3.1 percent of Spotify's 178 million shares were traded at the opening price of $165.90, Bloomberg reported. The demand for shares was lower than expected, and even the shareholders who actually sold their shares were lower than initial estimates. However, despite the share price closing at $149.01 on the first day of trading, much lower than the opening price, the music streaming company ended up with a valuation of $26.5 billion on the first day.
The interest in the Slack non-IPO is now peaking, given that the company's revenue rose 82 percent last year. Although Slack announced a net loss of $138.9 million in the last financial year, this is an improvement on net losses of $140.1 million and $146.9 million in the previous two years. Another reason why Slack's non-IPO is raising eyebrows is its venture capitalist backers. American venture capital firm Accel, which turned its initial $12.2 million capital in Facebook into a $9 billion worth stake, is one of the biggest investors in Slack ahead of the company's public foray. Going by the previously mentioned reference price of $26 per share, as stated by the NYSE, Accel's initial investment of $1.5 million into Slack – while it was still called Tiny Speck owned by Stewart Butterfield – could now be worth $3.1 billion.
If all goes well at the direct listing, it will be interesting to see whether other major tech firms will jump on the bandwagon of snubbing Wall Street's "coming-of-age" observance in order to reward early investors and shareholders.