IPO vs. Direct Listing vs. Reverse Merger

Founders who dream about taking a company public usually picture one thing: the bell ringing on the day of an IPO. In reality, there is more than one road to the public markets, and each comes with its own costs, risks and obligations. I wrote this letter to explain the three most common paths in plain language, as general education rather than a description of any plan at Boston Made.

The traditional IPO

In an initial public offering, a company works with investment banks to issue new shares and sell them to investors. The banks help set the price, market the offering and often support trading in the early days.

• Strengths: raises new capital, brings broad visibility and comes with an established process that many institutional investors understand.
• Trade-offs: it is expensive, time-consuming and demanding. Underwriting fees, legal and accounting work and months of preparation are typical, and pricing depends heavily on market conditions.

The direct listing

In a direct listing, a company lists its existing shares on an exchange without a traditional underwritten offering. Existing shareholders can sell, and the market sets the opening price.

• Strengths: lower underwriting costs, less dilution for existing owners and price discovery driven by the market.
• Trade-offs: historically this path suited well-known companies that did not need to raise money at listing. Without banks building demand, the share price can be more volatile, and the company still takes on the full obligations of a public company.

The reverse merger

In a reverse merger, a private company combines with a company that is already public, and the private company’s owners typically end up controlling the combined business.

• Strengths: it can be faster and less expensive than an IPO and less dependent on market timing.
• Trade-offs: it does not by itself raise capital, and the quality of the public shell matters enormously. Hidden liabilities, thin trading and reputational questions are real risks, so careful due diligence is essential.

What every path has in common

However a company reaches the market, life afterward looks similar. Public companies must produce audited financial statements, file regular reports, follow disclosure rules, maintain proper governance and answer to a much wider group of shareholders. The discipline required is significant, and it starts long before any listing.

That is why I encourage founders to build the habits of a well-run company early, whether or not they ever go public: clean books, clear records, sound governance and honest reporting. Those habits make a business stronger in every scenario, from raising private capital to selling the company to simply running it well.

Questions to ask first

• Why do we want to be public, and would private options meet the same goals?
• Are our financial records and controls ready for an audit?
• Can our team handle the ongoing reporting and governance work?
• Who are our advisors, and do they have relevant experience?

The right answer is different for every company. The important thing is to make the decision deliberately, with qualified advisors and a clear understanding of what each path demands.

This letter is general education only. It is not legal, financial or investment advice, and it is not an offer to sell or a solicitation of an offer to buy any security. Consult qualified legal and financial professionals before making decisions about public markets.