An unexplored route to the public equity market: A case study of Spotify's direct listing

Abstract: In this thesis, we analyze Spotify's choice of opting for a direct listing over a traditional IPO. We investigate the motivations and rationale behind the decision, provide insights from the process, and present some of the challenges that were faced. In order to fully understand the reasoning and the decision-making process behind the choice, we conducted a single case study. We find that the main motivations behind opting for a direct listing were that Spotify did not need to raise additional capital, since it was well-financed from the private market prior to its listing. Furthermore, Spotify wanted to avoid lock-up agreements and underpricing, which generally are associated with a traditional IPO. Adding to this, the ability to take more ownership of the investor education, and the importance of transparency and equal access for Spotify played an important role in ultimately opting for a direct listing. The most relevant challenges of the process were: the rules and regulation allowing for a direct listing of this scale had to be established, the absence of underwriters in the process left a greater degree of uncertainty around ensuring that there would be a liquid market following the listing, and lastly, the investor education had to be carried out so that investors would get sufficient information on Spotify, while satisfying legal requirements.