The Different Ways of Going Public in the US

Financial advisor Frank Cardia holds a FINRA Series 65 license and has worked in the financial services industry since 1996. The managing director of Iron Edge VC, Frank Cardia secures late-stage venture capital investments for private companies before they have their initial public offering (IPO).

There are a number of ways for a company to go public. The first is through a conventional IPO. Here, a private company selects an underwriter (usually an investment bank like Goldman Sachs or Morgan Stanley), and then drafts and files requisite documentation with the SEC. This underwriter helps the company create new shares for listing, and then takes the company on a roadshow, promoting the offering to equity investors like mutual funds, insurers, broker-dealers, and other investment banks. Afterward, the underwriter decides on a price for the shares and on an appointed day, it lists these shares on a public exchange like the NYSE or NASDAQ.

Another option for companies to go public is through a direct listing. Here, companies bypass the underwriting process and list some of their existing shares on a public exchange. The process is without the fanfare of a traditional IPO and is much less expensive. Shares listed through this method can be more volatile, however, as they lack the safety net provided by investments from institutional investors. Companies that have recently gone public using this method include Spotify and Slack.

Finally, there’s the reverse merger. Here, a private company merges with an already listed shell company. These shell companies, known formally as special purpose acquisition corporations (SPACs), are set up by private equity firms and often have no assets. When they merge with a private company, the new corporation becomes open to public investment. Recently, Virgin Galactic went public by merging with a SPAC known as Social Capital Hedosophia.