When a company offers a direct listing for a new stock, how is the initial price point determined?


I was monitoring this mornings introduction of the WORK stock from Slack. Unlike other tech companies, slack engaged in what’s referred to as a “Direct Listing”. While there have been many articles outlining the structural differences between a direct listing and traditional IPOs (lack of road show etc.), i’m still curious how the initial price is determined, and how the first few hours of trading unfold – What’s the interplay between the reference price, market makers, and the general public?

In: Economics

In the case of a direct listing, the original share holders put up their shares and determine the value themselves (no underwriters involved). It is much cheaper for the company but it is also considered extremely unsafe. There are no protections against the price swinging violently.

This can lead to your shares not being purchased; low demand = no value and your stock tanks.

Doing an IPO comes with the backing of security. In certain cases, where your product/offerings have an extremely solid future, or an already established market presence, you can do a direct listing and basically pop bottles because your product is the tits.