Direct Listing Vs IPO: What’s the Difference?

4 mins read
by Angel One

With numerous startup companies in the market going public, there are two processes to raise money or capital by which they can list the company’s shares for public exchange: IPO vs direct listing. IPO or initial public offering had been one of the most common practices taken by most companies through which they went public. However, another process has caught the limelight by many which is the direct listing process.

Direct listing is also referred to as DPO (direct public offering). With the constantly evolving market and new innovations, it has become quite hard to keep up for many. Thus, it is crucial to know what is direct listing vs IPO. Although both the processes can be utilized for a public listing of the company, there is still a subtle difference between direct listing and IPO and why some opt one over the other in a IPO vs DPO process.

Difference between IPO and Direct Listing:

  • In IPO vs direct listingprocedures, the IPO process involves creating of new shares which are underwritten with the aid of investment banks. However, some companies choose direct listing in direct listing vs IPO when they want to undergo public listing yet do not have the resources to pay for underwriters. This is majorly why many companies select DPO between direct offering vs IPO.
  • The difference between direct listing and IPOis that in an IPO procedure, throughout the entire process the underwriter operates together with the said company which includes determining the initial price offering of the company’s shares to going through regulatory requirements. In contrast to this direct offering vs IPO scenario, companies not wanting to dilute their existing shares to create newly formed shares or choose to avoid any kind of lockup agreements opt for direct listing. This is another reason as to why many opt for DPO between direct listing vs IPO
  • In the IPO vs DPOprocess, the underwriters buy the company’s shares that they are helping through the IPO process and later sell the company’s shares to a network of investors. These networks of investors include broker-dealers, investment banks, insurance companies and mutual funds. However, in the DPO vs IPO case, companies opting for DPO, the promoters, existing investors and also the employees that hold any shares to the company directly sell these shares to the general public. This is a major difference between IPO and direct listing.
  • Another difference between IPO and direct listingis that the underwriter during an IPO can ensure guaranteed sale of specific stocks right at the price offered initially. Whereas, in this DPO vs IPO circumstance, there are certain risks that involve as there is no kind of guarantee or support in the sale of the shares. This is where IPO had an advantage in direct listing vs IPO.
  • In the IPO vs direct listingscenario, the underwriters play an imminent and huge role throughout the IPO process which is why they come at a price. The rate to hire underwriters per share may range from 3% to a maximum of 7%. Although, in this case of IPO vs DPO, since there are no involvements of underwriters in a DPO procedure a company can save a fortune. In this situation of direct offering vs IPO, DPO has the perk to minimize cost while undergoing public listing.
  • Companies undergoing the IPO process traditionally have to go through something called the lockup period. In this the prevalent shareholders are restricted from selling their share of the company to the public. This lockup period is generally issued in an IPO because this helps in preventing the substantial supply available in the market which in turn reduces the value of the stocks. Whereas, in case of direct public offering or DPO, the preexisting shareholders can sell their company’s shares as soon as the company goes public. This is allowed in DPO because no new shares were issued and the transaction process can begin only if the shareholders start selling their shares.


It is vital to know what is direct listing vs IPO methods before understanding the other difference between direct listing and IPO as both processes involve raising capital that is interest free by selling shares for a public listing. While choosing between DPO vs IPO, it is important to know what the requirements of the company are and how much it can shoulder. Both the process of initial public offering and direct public offering to public listing for a company have their own set of advantages and disadvantages. Thus, after comprehending what is direct listing vs IPO, you should choose the method that is best suited for your company.