Archimedes Finance

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Case study: Coinbase IPO

What do we need to know about this non-traditional initial public offering?

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By SooMan

What are the most important things to consider with this IPO?

1) It's a direct listing where they are raising capital. This makes them the first company to do a direct listing to raise capital under the new SEC rules. In previous high profile direct listings, like Slack and Roblox, didn't raise money for the company. It will be interesting to see how this may or may not affect the IPO price. 

2) This is the first company to go public whose business is heavily linked to bitcoin and digital currencies. It will be interesting to see what the public reception will be and how that will translate to the company's valuation.

In a traditional IPO, a company will raise money by selling shares to bankers that then get traded on public exchanges. Dive into this piece in our newsletter for more about what IPOs are and how they work.

In a direct listing IPO, the company sells existing shares held by founders, employees, and early investors to public investors like us without issuing more shares. Check out this post in our newsletter to learn more about what direct listings are and what we need to consider before investing.

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How do retail investors factor in here?

Perhaps not in this IPO but soon, it seems likely retail brokerages will offer retail traders the ability to buy primary shares in an IPO. It seems there is a change in the relationships where many offerings and conversations between banks and companies that were taking place behind closed doors are now moving to be in front of retail. Throughout 2020 and into 2021, retail investors have shown that they have the power and aptitude to do this themselves and that these offerings should be put in front of them.

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What makes this IPO so special?

Raising capital is important for companies going public because it gives them a last bit of cash to push more growth; however, this wasn't available to companies who had done direct listings in the past. The benefit of direct listing for the company was to have a better price when they list compared to a traditional IPO. 

What's happening here with Coinbase is shaping up to be the best of both worlds; Coinbase will hopefully get the highest possible price when they raise money by selling new shares to public investors. 

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