IS IPO Fever Over? SEC Reported Looking At Alternatives Like Direct Listings

The U.S. Securities and Exchange Commission is looking for alternatives to initial public offerings, entertaining proposals for “novel offerings or procedures.”

SEC officials met recently with representatives from Morgan Stanley, the Nasdaq exchange and the law firm of Latham & Watkins in Washington to discuss the concept of direct listings and other approaches, the Financial Times reported.

The Financial Times said the SEC declined to comment on the session but cited an “open door for issuers and their advisers if they have questions in general, and in particular about novel offerings or procedures.”

Silicon Valley investors and advisers reportedly are pushing for other companies to follow the leads of Slack and Spotify, which chose to skip the IPO route and just release pre-existing shares to the public without creating any new equity.

SEC officials raised questions about the direct approach, centering on disclosures to potential investors such as valuations, the Financial Times said.

Discussions about direct listings have increased since Peleton and SmileDirectClub IPOs got off to sluggish starts, and WeWork was forced to delay its planned debut amid falling valuations. Food-delivery startup Postmates, which had been expected to go public this year, reportedly is delaying its IPO due to market conditions, and home-sharing company Airbnb, which is expected to go public next year, reportedly is planning a direct listing.

Bill Gurley, the venture capitalist from Benchmark and former Uber board member, hosted an invitation-only IPO discussion in San Francisco two weeks ago, featuring Slack and Spotify executives, who talked about why they eschewed underwriters in favor of direct listings.

One of the advantages of direct listings is that it allows early investors to cash in immediately rather than sitting out a six-month lockout period. It also allows them to avoid paying hefty underwriter fees.

“I’m not anti-banker; I’m pro-algorithm,” Gurley said, adding that humans have been “mispricing” IPOs for decades.