Is The IPO Market Broken?

2020 was a record year in the IPO market as companies sought to capitalize on a red hot market and the euphoria of young retail investors. But the market is changing. SPACs, which used to be seen as highly speculative are now raking in billions, almost to the levels of traditional IPOs while a new direct listing rule from the SEC could upend the status quo. So is the IPO market broken and is it really the end of the traditional IPO as some suggest? Watch the video for more.

The 2021 IPO market is already on fire six weeks into the new year, with SPACs leading the way.

SPACs have raised more than $38 billion year to date, with an average of $296 million for 128 SPAC IPOs, according to SPACInsider. That’s nearly half the money raised by SPACs in 2020. Last year, SPACs hauled in a record $83 billion with an average of nearly $335 million for 248 listings.

This year’s numbers dwarf those in previous years. In 2019, only $13.6 billion were raised through SPACs. In 2018 and 2017, they collected $10.7 billion and $10 billion, respectively.

The big question this year is how a change to the New York Stock Exchange’s direct listing rules will impact the IPO market.

The new rule, which was approved by the Securities and Exchange Commission in late December, will allow companies to raise fresh capital through direct listings as opposed to just selling existing shares. Under the change, companies can raise cash from retail investors as well as by selling existing shares of the company. Making direct listings more attractive could cut demand for a SPAC or traditional initial public offerings.

“Everyone’s on a level playing field,” NYSE President Stacey Cunningham told CNBC when talking about the new rule. “What’s great about it is it democratizes access to that public listing on the exchange on that first day of trading.”

Online gaming company Roblox may be one of the first to take advantage of the new rule in February. The company filed for a traditional IPO in December but delayed its debut after Airbnb and DoorDash posted massive first-day pops. This trend has some analysts saying the IPO pricing market is broken.

Digital currency exchange Coinbase announced plans to go the direct listing route at the end of January, and software companies UiPath and DataBricks are expected to take that route as well after massive funding rounds.

Watch the video above to learn more about the IPO and SPAC processes and whether the IPO market is really broken.

0:00 -- Intro
1:55 -- Traditional IPO Process
7:28 -- Results for VIPs
9:46 -- IPO alternatives

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Is The IPO Market Broken?7:28