Music streaming service Spotify made its New York Stock Exchange debut this morning where investors set its reference price at $132. The company, which is now valued at $23.5 billion, opted for a direct listing and did not rely on bank underwriters.
Drew Pascarella, lecturer of finance at Cornell SC Johnson College of Business, says that Spotify’s unorthodox listing is a one-off, unique situation as the company does not resemble classic pre-IPO firms.
“IPOs, generally, are an opportunity for companies to begin to transition their shareholder bases from early stage investors (VCs) to institutional investors (such as mutual funds) as they enter a new phase of maturity.
“These two investor bases have vastly different risk and reward tolerances, and the process by which this transition occurs is complicated. That’s why companies hire investment bankers for IPOs.
“But, Spotify is different. They’ve been around for a long time, and their shareholder base has already begun to look like that of a public company. So, the early-stage to institutional investor transition has already begun, and now those institutional investors want liquidity. Most pre-IPO companies don’t have shareholder bases that look like that of Spotify. I don’t see this as the beginning of the end of investment banks as IPO underwriters; this is a one-off, unique situation.”