The Direct Listing Readiness Framework
When your company doesn't need Wall Street's cash or hype machine, skip the IPO.
- Difficulty
- Advanced
- Time to result
- ~months to results
- Steps
- 5
- Confidence
- 75%
As direct public offerings (DPOs) became a viable alternative to traditional IPOs (pioneered by Spotify and later used by Slack), the hosts lay out the conditions under which a company should choose a DPO instead. Unlike an IPO, a DPO creates no new shares, raises no primary capital, and removes the employee lockup period — but it requires the company to already have enough brand recognition and market awareness that it doesn't need an underwriter-led roadshow to generate investor demand. Investment banks shift from underwriting stock to an advisory role, canvassing existing shareholders to gauge selling interest and helping set a reference price. This framework helps operators and investors evaluate whether a late-stage private company is a good DPO candidate or should instead pursue a traditional IPO to raise growth capital.
Origin
Extracted from Acquired
Core principles
- 01No new shares means no dilution and no primary capital raised
- 02Removing the lockup benefits employees but increases trading volatility risk
- 03Bankers move from underwriters to advisors who canvass existing holders
- 04Brand awareness substitutes for the roadshow's investor-education function
How to run it
- 1
Check capital needs
Determine if the company needs to raise new growth capital; if yes, a traditional IPO (which creates new shares) is likely required.
Watch out Companies like Uber and Lyft had to IPO because they needed the cash — DPOs don't raise money for the company.
- 2
Assess brand strength
Evaluate whether the company is already well known enough that public investors don't need a roadshow to get comfortable buying shares.
Pro tip A consumer-facing brand within an enterprise product (like Slack's) can substitute for the marketing a roadshow provides.
- 3
Map the existing shareholder base
Check whether large institutional investors already hold private shares; if so, a new-share IPO may face weak incremental demand from the same buyers.
- 4
Shift bankers to an advisory role
Pay banks a fee to work with existing shareholders to determine who will sell and at what price, rather than have them underwrite and buy new shares.
- 5
Set a reference price the night before trading
Use banker guidance based on canvassed seller/buyer interest to set an opening reference price instead of a traditional roadshow order book.
Watch out No lockup means employees can sell immediately, which can create real price volatility.
In the wild
With $800M in cash on its balance sheet, no urgent need to raise capital, and a globally recognized brand, Slack filed to go public via DPO rather than IPO in 2019, setting a reference price of $26 a share.
→ Slack's stock closed its first trading day up nearly 50% at $38.62, a $19.5 billion market cap, without the company raising any new capital.
Common mistakes
Attempting a DPO while needing cash
Companies like Uber and Lyft required an IPO because they needed to raise primary capital, which a DPO structurally cannot provide.
Underestimating volatility without a lockup
Removing the lockup benefits employees but can create sharp, unmanaged price swings without underwriters stabilizing the market.
Is it for you?
Not ideal for
Companies that still need to raise primary growth capital, or that lack sufficient public brand recognition to generate trading demand without a roadshow.
From the transcript
“In a DPO, the the only shares that start trading are all the existing shares.”
“So to do a DPO, one, you have to not need the cash like companies like like Uber and Lyft do. Two, you need to…”
From the episode
The Slack DPO