Slack, the popular workplace messaging platform, closed its first trading day at $38.62 per share, 48.5% above the reference price of $26 per share set in its direct listing. Shares closed down 3.63% to $37.22 on Friday.
In a typical IPO, there's a lockup period of between 90 to 180 days when insiders -- including employees, executives, directors and in many cases investors -- may not sell their shares. That's not the case in a direct listing, however, such as Slack's.
Slack's largest shareholders include venture capital firms Accel (22.5% stake), Andreessen Horowitz (12.5%), Social Capital (9.5%) and Softbank (6%). Other major shareholders include founder and CEO Stewart Butterfield (8%) and CTO Cal Henderson (3.2%); employees and other shareholders own about 18%.
So what's the likelihood that those stockholders decide to bail out, take their profits and head for an early retirement?
Elliot Lutzker, a partner at Davidoff Hutcher & Citron LLP who advises on IPOs and DPOs, said that direct listings can create a "dangerous situation" if such a mass exodus were to occur. Moreover, venture capitalists or other early investors may be more motivated, or pressured by their limited partners, to start cashing out as early as possible.
"With unicorns, the VCs have been holding their stock for an extended period of time," he pointed out. "Rationally, it follows that the people who have been in there for five years might not have any restrictions."
The good news? Slack shares were already trading at high volumes even when the company was still private.
EquityZen, a trading marketplace for shares in pre-IPO companies, wrote in a report that the trading volume of Slack Class B common stock reached $365 million over the past 10 months -- a relatively high volume even among well-known unicorns.
"Slack's volume of over $365 million is actually quite meaningful for price discovery purposes relative to IPOs," said Adam Augusiak-Boro, a senior research associate at EquityZen. "Slack didn't hire an investment bank to build a book of investor demand and price Slack's shares through a roadshow as a company would in a traditional IPO. Slack may not have had to, given the relative depth of the secondary trading in its stock."
A robust trading history on secondary exchanges can serve as a form of validation one a stock hits the public markets. As recently as May of this year, Slack shares traded at an average of $26.82 as high as $31.50 per share, EquityZen noted -- comfortably in the range of Slack's initial $26 per share reference price.
"The positive thing right now is that the stock was traded as a private company in the last fiscal year, and it looks like it was fairly priced at the initial price," Lutzker added. "If the fundamentals are all sound, you wouldn't think that people are going to bail out."
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