Need Capital?: IPOs Vs. SPACs Vs. Direct Listings

The video tutorial explores three methods of raising capital: traditional IPOs, direct listings, and SPACs. Traditional IPOs involve creating new shares, while direct listings sell existing shares without underwriters, offering benefits like avoiding share dilution and allowing market-driven pricing. SPACs, or blank check companies, facilitate quicker IPO processes with less regulation. The video highlights the surge in SPACs and capital raised in 2020, nearing global records.

What is a key characteristic of a traditional IPO?

• It has no underwriters.

• It sells only existing shares.

• It creates new shares for the public.

• It avoids share dilution.

Why might a company choose a direct listing over a traditional IPO?

• To increase underwriting costs.

• To ensure a fixed share price.

• To avoid share dilution and lock-up periods.

• To create new shares.

What is a potential downside of a direct listing?

• Guaranteed share price.

• Increased regulation.

• Higher underwriting costs.

• No guarantee of shares being sold.

What is a SPAC primarily used for?

• Increasing share dilution.

• Creating new shares.

• Merging with or acquiring another company.

• Avoiding public trading.

Which of the following is an advantage of using a SPAC?

• Longer IPO process.

• Fixed share price.

• More regulation.

• Theoretically unlimited capital raise.