David N. Feldman

Spotify May Go Public With “Self-Filing”

IPO alternatives appear to be alive and well as we learn from press reports that unicorn music service Spotify may go public through a “self-filing,” also known as a “direct listing.” In my first book, over 10 years ago, I talked at length about the potential value of this very straightforward technique. Assuming you otherwise qualify for an exchange listing, you simply file to register some already outstanding shares for trading, without raising new money, and off you go. Recent self-filers include Coronado Biosciences.

What is the main benefit of most IPOs? Raising money. Apparently Spotify, having raised $1 billion, is good on that front. Then why do they want to go public? We can only speculate as to Spotify’s reasons, but the most common reasons are to raise more money in the future, to make acquisitions easier using public stock as currency, to reward executives with valuable stock options, and to create a path to liquidity for those who have founded and built the company.

Through this process, Spotify saves dilution from IPO investors and the cost of underwriters. Why raise money you don’t need? Since reverse mergers, which also can be used in the “no need to raise money” scenario, are much more difficult to do these days, self-filings deserve some attention.