The shares come from insiders at the company and any other shareholder, employee, record company, other investors already holding shares who want to get out. So, you may ask, if the issuer doesn’t sell shares to an underwriting syndicate, where do the shares come from? Spotify priced at $132 using a loophole from the SEC. Facebook priced at $38, Google at $85, Alibaba $68, Amazon was $18. (Dropbox, for example, priced at $21 and closed at $28.48 on its first day of trading.
There are no new shares, there is no syndicate, and the price is set ( or was for Spotify) by reference to the price of shares selling in the private market immediately before the public is able to buy–and my bet is that the DPO price was a lot higher than an IPO price would have been. This is completely different from the direct public offering. In the case of a full commitment underwriting IPO, the company sells shares to an underwriting group (or “ syndicate“) and the syndicate then sells those shares to the public after the syndicate decides the valuation of the company and the price of the shares of stock. These investors are often called “underwriters”.
In an IPO, or as it’s more precisely known, a “f ull commitment underwriting,” the company (or “issuer”) actually raises money through selling new shares of stock to a group of investors, usually banks. Remember, Spotify did not offer shares in an “initial public offering,” they used an untried method called a “direct public offering.” However–Spotify is a particularly interesting stock for a number of reasons, mostly having to do with the nature of the initial offering. Stocks go up, stocks go down, can’t pick a top and can’t pick a bottom.
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