Why Palantir Chose To Have A Direct Listing vs. Initial Public Offering
Palantir Technologies went public on September 30th 2020. Despite having been formed over 17 years before that day, Palantir was never a company that was available to the retail investor.
Palantir did not go public in the traditional manner, the executives at the company decided an initial public offering was not the route they wanted to go. Given the recent mania of SPAC or Special Purpose Acquisition Companies as a means to bring private companies public, I imagine that is where your brain went for how Palantir went public.
In reality, there are several different ways for a company to go public and list its shares on the stock market. Some of the most common ways include:
Initial public offering (IPO):
An IPO is the most common way for a company to go public. In an IPO, the company works with investment banks and other intermediaries to sell its shares to the public for the first time. The company sets a price for its shares and the investment banks help to market the offering to potential investors.
Pros: An IPO is a well-established way to go public and can raise a significant amount of capital for the company. Investment banks and other intermediaries can provide professional support and marketing for the offering.
Cons: An IPO can be a lengthy and costly process, and the company may have to give up some control over the terms of the offering in order to work with investment banks and other intermediaries.
Direct public offering (DPO):
A DPO is a type of public offering in which a company sells securities directly to the public, rather than through an underwriter or broker. In a DPO, the company works directly with individual investors, rather than going through the traditional process of working with investment banks and other intermediaries.
Pros: A DPO allows a company to go public more quickly and inexpensively than an IPO, and gives the company more control over the process of going public. It can also help the company build a more diverse group of shareholders.
Cons: A DPO may not raise as much capital as an IPO, and may not receive as much attention from the financial media and analysts.
A reverse merger is a process in which a private company merges with a publicly traded company, and as a result, the private company's shares become publicly traded. This allows the private company to go public without going through the traditional IPO process.
Pros: A reverse merger can be a faster and less expensive way to go public than an IPO. It can also allow the private company to retain more control over its operations.
Cons: A reverse merger may not be suitable for all companies, as it requires the company to find a publicly traded company to merge with. Additionally, the company's shares may not receive as much attention from the financial media and analysts as they would in an IPO.
Special purpose acquisition company (SPAC):
A SPAC is a publicly traded company that is created specifically to acquire another company, which then becomes a publicly traded company as a result of the acquisition. SPACs are also known as "blank check" companies, as they do not have any specific business operations when they go public.
Pros: A SPAC allows a company to go public quickly and efficiently, without going through the traditional IPO process. It can also provide an alternative way for a company to raise capital.
Cons: A SPAC may not be suitable for all companies, as it requires the company to be acquired by a publicly traded SPAC. Additionally, the company's shares may not receive as much attention from the financial media and analysts as they would in an IPO.
Regulation A+ is a type of public offering that allows smaller companies to sell securities to the public. Regulation A+ offerings are less expensive and less burdensome than traditional IPOs, and allow companies to raise up to $75 million in capital.
Pros: Regulation A+ is a less expensive and less burdensome way to go public than an IPO, and is suitable for smaller companies. It also allows the company to raise up to $75 million in capital.
Cons: Regulation A+ offerings may not receive as much attention from the financial media and analysts as traditional IPOs, and may not be suitable for companies that need to raise more than $75 million in capital.
Palantir chose to go public using the Direct Public Offering route. Which was in and of itself very confusing for some people, as Alex Karp the CEO had stated that taking a company like Palantir Public would make it very difficult to run the business.
A company choosing a DPO typically doesn't need to raise capital to fund its ongoing operations. Another benefit of this type of listing is that it allows early investors and company insiders to sell shares on the first day of trading, without being bound by the typical lockup period. The DPO minimizes the duties of the investment bankers, with the company taking on many of the tasks itself, helping save millions of dollars in the process, as an IPO can typically cost a company between 3.5% to 7% of the gross IPO proceeds.
Overall, DPOs can be a useful option for companies looking to go public and raise capital, but it is important for companies to carefully consider the pros and cons of using this approach before deciding if it is the right fit for their needs.
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