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Illustration: Sarah Grillo/Axios

Nobody wants to be the guinea pig. Regulators approved a new process for "hybrid" listings back in December — but no company has yet taken this route.

Driving the news: Specifically, the SEC said companies can make direct listings with a primary capital raise on the NYSE. It subsequently approved such listings on the Nasdaq in May.

Why it matters: The new listing format was hailed as a solution for companies that want the benefits of a direct listing and need to raise new capital.

The big picture: Since December, four companies have gone public via the classic direct listing: Roblox, Coinbase, ZipRecruiter, and Squarespace.

  • For comparison, only three did in all of 2020, and three in 2018 and 2019 combined.

Between the lines: The devil's always in the details — and those still need to be ironed for hybrids.

  • The first mover will face a laborious SEC process that’s sure to take much longer than the established methods.
  • For context, Spotify completed the first-ever direct listing, in 2018, and it put in several more months with regulators than it would have taken with an IPO.

What they're saying: "It's a structure that’s fascinating on paper ... and exceptionally difficult to figure out what company this would be for," says Lise Buyer, founder of IPO consulting firm Class V Group.

IPO experts and top bankers still have questions around pricing and Regulation M, among other things.

  • Pricing: Under the NYSE rules, issuers would have to price within the range they set — or refile. This could prove tricky and add delays that companies would prefer to avoid, and it's unclear if the SEC would be willing to allow them to set a wider range than the usual 20% top-to-bottom range.
  • Reg M: While Spotify was able to get a no-action letter from the SEC for how it planned to ensure that the company and its advisors wouldn't manipulate the price, it's unclear how an issuer and its underwriters would do so in hybrids — or what the SEC will bless.

Meanwhile: Companies using the IPO route have increasingly been able to customize in ways that rival what they'd get from a direct listing — like shorter employee lockup periods.

  • Unity, Airbnb and DoorDash, which all went public last fall, used a new system for an auction-like price setting process. Recall that price discovery was among the top arguments touted by direct listing advocates.
  • And those who wanted to raise fresh capital and conduct a direct listing simply raised a private funding round prior to going public.

Yes, but: Insiders are optimistic that it's only a matter of time before a company makes the jump.

  • It'll be one that won't mind the protracted timeline, and more likely when the SEC is less stretched with more urgent matters. (This may turn out to be wishful thinking if the commission's agenda remains jam-packed.)

The bottom line: The hybrid listing so far has been more of a solution in search of a problem.

Go deeper

Oct 12, 2021 - Axios Tampa Bay

Ready-to-go family seafood restaurant up for sale

Inside Penninsula Seafood. Photo: KW Commercial

Mid Peninsula Seafood Restaurant in St. Petersburg is ending its more than four-decade history as a family owned and operated business, and is now looking for a new owner/operator.

Point of intrigue: The restaurant is listed as a ready-to-go business. It's still up and running while the family waits for a new owner.

Gaming CEO calls on industry to help fight climate change

"Catalyst Black." Screenshot: Super Evil Megacorp

Gaming CEO Kristian Segerstrale is calling on leaders in his industry to take action on climate change, after completing a $1.4 million fundraising campaign this summer.

Why it matters: Gaming's pandemic-fueled boom creates an opportunity, and maybe even an obligation, to do some good.

3 hours ago - World

U.S. releases updated vaccination, testing rules for foreign travelers

Photo: Patrick T. Fallon/AFP via Getty Images

Foreign travelers will be allowed entry to the U.S. beginning Nov. 8 if they can provide proof of full COVID-19 vaccination with a shot authorized by the World Health Organization and a negative test within three days of departure, the White House announced Monday.

Why it matters: The updated guidance, which exempts children under the age of 18 from the vaccine requirement, is intended to provide further clarity for airlines and foreign nationals who have been restricted from traveling to the U.S. since early 2020.