IPO vs direct listing: What’s the difference?

Find out why a direct listing isn't quite the same as an IPO

Both IPOs and direct listings are methods for companies to go live on a stock exchange, but they’re slightly different. In short, an initial public offering (IPO) is where brand new shares of a company are created to be sold to investors to raise capital (money). This requires the shares to be underwritten. Meanwhile, a direct listing is where there aren’t any new shares created, and the existing shares are sold to investors.

These two methods of floating on a stock exchange are pretty similar, unlike SPACs, which are a totally different kettle of fish.

What does an underwriter do in an IPO?

IPO underwriters assist a company in organising an IPO. They help to determine the initial price of the shares and how much the company wants to raise. You might have heard of underwriters in insurance – this is because they evaluate risk, which is often the benchmark on which the IPO price is determined.


An initial public offering is where new shares are created. The company needs to hire an underwriter to help with the process who deals with regulation and pricing. They buy the shares from the company, then sell them to the public.

As new shares are created, the existing shares, such as any owned by employees or private investors, are diluted. This means that the current shareholders suddenly own less of the company than before – you can think of this in exactly the same way as diluted drinks – we all have our suspicions about the drinks at the local cinema.

So if a company decided to issue 100% more shares than it does right now – doubling its shares, then the percentage of the company that the current shareholders hold would halve.

Companies have to pay underwriters to create new shares, which is typically a small percentage per share. If a company can’t, or doesn’t want to, pay for underwriters, then it can choose to go public with a direct listing.

Some companies that have gone live with IPOs include Airbnb, Snowflake and Bumble.

Direct listing

If a company doesn’t want to pay an underwriting fee or doesn’t want to dilute its existing shares then it can choose to list directly. This isn’t a way of raising capital – as there isn’t anything new for the company to sell.

The process involves selling any existing shares – including those that any existing investors and employees own. The main issues with this is that there’s none of the promotion or media hype you usually see. This is typically something the underwriters deal with.

There’s also no guarantee that the current shareholders will want to sell up – and if there’s a lot of interest then demand would outstrip supply, which tends to rise the price. A scenario like this could be frustrating for investors that want in.

Some companies that have gone live with direct listings include Slack, Spotify and Palantir Technologies. It’s also how Coinbase plans to go live on NASDAQ.

Bottom line

A direct listing is just another way for companies to choose to go public. It tends to be the decision made when the company isn’t in need of any extra money. It’s a way to allow current shareholders to sell their portions of the company (known as increasing liquidity).

Compare investment services

Table: sorted by promoted deals first
Name Product Price per trade Frequent trader rate Platform fees Brand description
eToro Free Stocks
Capital at risk. 0% commission but other fees may apply. The minimum deposit with eToro is $50.
Hargreaves Lansdown Fund and Share Account
Hargreaves Lansdown is the UK's number one platform for private investors, with the depth of features you'd expect from an established platform. The minimum deposit with HL is £1. Capital at risk.
Finder Award
Claim your free share worth between £3 and £200. Capital at risk.
Degiro Share Dealing
UK: £1.75 + 0.014% (max £5)
US: €0.50 + $0.004 per share
Degiro is widely seen as one of the best low-cost share brokers, for people who are looking to trade regularly. The minimum deposit with Degiro is £0. Capital at risk.
interactive investor Trading Account
£7.99 (with one free trade per month)
£9.99 per month
Interactive Investor offers everything most investors need. Its flat fees makes it pricey for small portfolios, but cheap for big ones. The minimum deposit with ii is £0. Capital at risk.

Compare up to 4 providers

All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.

Frequently asked questions

More guides on Finder

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder.com provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and Terms of Use.

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site