Term Sheet — Tuesday, April 3 | Fortune
Good morning, Term Sheet readers.
It’s Spotify’s day. The music streaming company’s public debut on the New York Stock Exchange this morning will make history no matter what happens.
Yesterday, CEO Daniel Ek said, “Spotify has never been a normal kind of company.” Rather, his company is pursuing a direct listing, making it the first large, high-profile company to do so. Everyone will be watching closely today as this IPO cuts out the traditional roadshow process and many of the traditional Wall Street investment bankers and fees that come along with it.
In preparation for its direct listing, Spotify also waived its right of first refusal on private secondary share sales to facilitate increased transaction volume. From these trades, Spotify and its advisers are receiving vital information about investor sentiment and a more up-to-date market valuation than the typical private company, according to PitchBook.
Term Sheet recently spoke with Spotify’s very first investor, Pär-Jörgen Pärson, a general partner at Swedish growth investment firm Northzone. To him, success on the first day of trading is not “a crazy pop.” He added: “It’s that it’s a solid support for the share and probably a double-digit price increase, but not a whole lot more than that.”
Analysts are predicting that Spotify could soon be valued at more than $20 billion, but Ek is asking employees, investors and observers to manage expectations. “Remember, tomorrow is just another day in our journey to fulfill our mission,” he wrote.
Depending on how the first day of trading goes, could we expect other unicorns to follow suit? Don’t hold your breath. “For huge market cap, household names with cash-efficient models that don’t need to raise external capital, I absolutely think it could be a right fit,” Pärson said. “But there are very few companies who have all of those characteristics.”
More importantly, what Spotify is doing is challenging the notion that founders need bankers’ full array of services to go public. Depending on how today goes, we’ll know the answer. I like how Recode’s Teddy Schleifer put it:
If the direct listing is successful, then the push-and-pull power struggle between Silicon Valley and Wall Street would shift more toward the former. More and more highly-valued startups could think that they, too, do not need Wall Street’s usual fare in order to become a public company, and investment bankers could have a tougher time pitching their services to CEOs.
In the end, it’s all about power.
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