IPO alternatives explained: SPACs and direct listings vs IPOs

Despite VC backed IPOs gaining strength following a low in 2016, the process is still complex, lengthy, and expensive for companies. Unicorns like

Blue Apron

After entering the market, it was difficult and the current share price is far lower than its initial share.

Faced with the

The challenges of an IPO

Some companies and investors are exploring alternative IPOs. This blog will talk about two such alternatives: special purpose acquisitions companies (SPACs), direct listings.

What is an SPAC (special purpose acquisition corporation)?

A special-purpose acquisition company (SPAC), a public-traded buyout, is a company that raises capital via an IPO in order purchase or to gain a controlling percentage of a company. SPACs are also known by the name “blank check” companies. The target company is not known at time of IPO. SPACs have typically two years to acquire at least one company once they are public. SPACs do not charge an IPO fee for the acquisition of a company. All underwriting fees and fees are paid before the target companies ever get involved. The key difference between IPO valuation and SPAC pricing is how each company is on market. SPACs cannot trade as many shares or to as many people IPO shares can, therefore their price can be determined earlier, but they also lose some of the growth potential that an IPO offers.

Sponsors of the SPAC Market have included large private equity groups like TPG and The Carlyle Group. SPACs have been able to merge household brands like Hostess with newer companies like DraftKings.


The blind buying of shares can seem like a bad thing, but it can actually help stabilize a company after it goes public. According to proponents, the strategy is based on traditional IPO investors’ “short-term thinking” which can lead in the initial mispricing of the company and other longterm consequences.

SPACs, despite their low-cost advantages, can be risky. Investors have the right to withhold their investments if they don’t like the target company. Although the management team has the incentive to find and acquire the best company (they do keep a 20% finder fee after all), there is still the risk that they will lose investors. If shareholders are unwilling to withdraw capital, the SPAC can pull out.

SPACs began to dominate IPOs in 2020. SPACs have been raising more money that traditional IPOs. This frenzy doesn’t seem to be slowing. SPACs remained active even when many IPO plans were thrown off track by the coronavirus virus pandemic. SPACs’ values are linked to how many investors they have raised, making them more resilient to market changes. Investors are also optimistic that SPACs will be more likely to purchase in a recession.

What is direct listing?

Direct listing is also known as a “direct public offering” and allows private companies to become public through the sale of shares to investors on stock market without IPO. Previously, companies would have listed existing shares rather that issue new ones. However, in December 2020, the SEC changed their rule to allow companies raise new capital. Spotify & Slack have been two examples of companies that have gone publicly via direct listing. squarespace is also a recent applicant to go public via direct trading on the New York Stock Exchange.

Direct listing vs IPO

Direct listings eliminate the need of a roadshow and underwriter. The company saves time, money, and is able to receive five to eight percent of any capital raised during an IPO. Prepare for it

recent direct listing

Spotify employed multiple advisors, who were paid a flat fee. This helped keep costs down.

Direct listings provide shareholders with the option to immediately sell their shares without waiting for the company to go public. However, there is a risk in eliminating the safety net underwriters provide and locking up periods.

Spotify and other companies have partnered with Spotify to mitigate some of these risks.

Secondary transactions

. Secondaries provide shareholders with the opportunity to sell equity in advance of a direct listing.

SPAC vs traditional IPO vs. Direct Listing


  • Is there a publicly-traded buyout company
  • Raises capital via IPO
  • Aims to buy private companies that fit investment strategy
  • Purchases a private company that then goes public, without the need to pay an IPO


  • Private company goes public by following a procedure
  • New shares are available to the public
  • Fundraises new capital from public shareholders
  • The cost of a roadshow or underwriters can be prohibitive.

Direct listing or DPO

  • Publication is the process through which a private business goes public
  • Sells shares directly, without intermediaries
  • This eliminates the need of underwriters, investment bankers and roadshows
  • Investors don’t have to lock-up or hold for any length of time

Find out more information about SPACs.

These additional SPAC research pieces are available from our analysts to help you understand these trends more fully. They answer questions like “Does valuation affect the decision to go public?” SPACs have overtaken the mobility industry.


PitchBook Analyst Notification: The 2020 SPAC frenzy


PitchBook Analyst Note: The Mobility SPAC Handbook


PitchBook Analyst Notification: Consumer Unicorns Make Moves to 2021 Direct Listings

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