4Indeed, major companies have taken the lead. As more money flows into private markets, direct listings could become a viable path to liquidity for many unicorns. The ideal candidate is a company without an immediate need for cash with a strong brand and an easy to understand business model. 3 Now, direct listings are not intended for all companies. 2The NYSE amended its rules to provide a path for direct listings, and the Nasdaq has recently filed a proposal to clarify its direct listing procedures. 1Indeed, workplace messaging company Slack has filed confidential materials with the SEC to conduct a direct listing in 2019, making it the first to adopt the model that Spotify pioneered. Many legal scholars and financial commentators have remarked on the novelty of the approach, the pecuniary and strategic benefits of the process, and the potential for other “unicorns” to follow Spotify’s lead. The company, meanwhile, can realize the financial flexibility that public companies typically enjoy without facing the steep fees common to the standard IPO process. Shareholders can take advantage of the liquidity that a national exchange provides without first being subject to a lengthy lockup period. Direct listings allow a company to achieve many of the benefits of being public without incurring the costs associated with a traditional IPO.
Rather, existing shareholders, such as employees and early-stage investors, can simply sell their shares to the general public upon listing. The company does not raise new money through the offering as it would in a traditional IPO. In a direct listing, a company makes its shares available for purchase on a national exchange. This Comment examines the statutory contours of the process and asks whether the investment banks that Spotify retained as “financial advisors” qualify as statutory underwriters notwithstanding Spotify’s claim to the contrary.ĭirect listings have the chance to become a new tool in the equity capital markets toolkit. Spotify worked closely alongside legal counsel and investment banks and in communication with the Securities and Exchange Commission (SEC) throughout 2017 and early 2018 to facilitate the unorthodox listing. Rather than raise money by issuing newshares to the public through a traditional initial public offering (IPO), Spotify made its existingshares available for purchase on the public exchange through the seldom-utilized direct listing process. (Spotify) went public through a direct listing of its ordinary shares on the New York Stock Exchange (NYSE). On April 3, 2018, global music streaming company Spotify Technology S.A. By walking through the precise statutory elements of a direct listing and by calling attention to latent liabilities in the process, this Comment seeks to set forth a path for future technology unicorns to follow the Spotify playlist.
SPOTIFY STOCK BUYBACK REGISTRATION
As this financial innovation unfolds, an important question remains: Who is liable as an “underwriter” in a direct listing for purposes of liability under Section 11 of the Securities Act? This Comment argues that the investment banks Spotify retained as financial advisors qualify as statutory underwriters notwithstanding language in the registration statement to the contrary. In recognition of these developments, this Comment has two aims: to shed light on the statutory contours of a direct listing and to contribute to the legal understanding of underwriter liability. Major technology companies are now adopting a similar approach. Spotify worked throughout 20 alongside legal counsel and investment banks and in communication with the Securities and Exchange Commission to facilitate the unorthodox approach. Eschewing standard Wall Street practice, Spotify did not raise new money through the offering and instead simply made its existing shares available for purchase by the public.
In April 2018, music streaming giant Spotify disrupted the traditional initial public offering modeland became a publicly traded company through a novel process known as a direct listing.