Reflection from a Nasdaq-listed CEO: Why we avoided venture capital funding and decided to list directly instead

Written by Doug Croxall

Just over a year ago, Crown Electrokinetics listed on Nasdaq. Our symbol: RCDR.

It was a great moment in the life of our company. But our direct listing was really just the start of a tremendous year of growth, as we continue to accelerate the commercialization of smart window technologies that will save our customers money on their utility bills. energy and reduce carbon emissions at the same time.

I have answered hundreds of questions from clients, new hires and investors since our direct registration. And in those discussions, after talking about how our technology works and how we get customers through the door, one of the most common questions I get asked is, “Why did Crown become public so early?”

The answer to this question is critically important, not just to me, but to entrepreneurs everywhere, whether they realize it or not.

First, entrepreneurs and their investors should know that Crown’s journey to the world’s second largest stock exchange via a direct listing is not uncommon.

That’s what I did with my last company, Marathon Patent Group, now called Marathon Digital Holdings (Nasdaq: MARA), which started in the intellectual property business and is now a leader in the cryptocurrency market. currencies. And many other companies have chosen the direct listing route instead of IPOs or SPACs, including: Coinbase, Amplitude, Roblox, Slack, ZipRecruiter, Warby Parker, and Squarespace.

For Crown, we took the first step of listing directly on the OTCQB venture capital market in June 2020. Then, seven months later, our stock was approved for trading on the much larger Nasdaq Capital Market. , in a process called “uplisting”. Along with this IPO, we also completed a $21.5 million public offering.

So what have we learned from direct listing and why should it matter to you as an entrepreneur or investor?

  1. You keep more of the capital. Relying on venture capital for years, hoping for a successful IPO or SPAC at the end of the rainbow, can lead to massive dilution for company founders and early investors. . Sometimes the dilution after multiple rounds of VC funding is so extreme that a startup’s founders lose control of their business. Going public via a direct listing keeps founders and early investors in the driver’s seat.

  2. You can access a larger investor base, faster. In addition to losing control of your business, handcuffing yourself to a handful of venture capital funds or wealthy people limits your growth potential. You are effectively betting that their judgment is infallible, of what the company is worth, what markets you should be in, what senior executives you should hire. Why shouldn’t retail investors have the same access as venture capital funds and high net worth individuals? Make fundraising more open and democratic; let small investors grow with the company. It’s already happening on Kickstarter, with a fraction of the oversight and transparency of a publicly traded company, so don’t tell me it’s too risky for retail investors.

  3. Your management team is better aligned with shareholders. The dilution that accompanies multiple rounds of venture capital funding also means less equity for the management team and employees. Does splitting 10-20% of equity between dozens and dozens of executives and senior executives – which is fairly typical for a venture capital-backed technology company – offer these people a lot of incentives beyond their paychecks? Not really. When the people who make day-to-day operational decisions have a greater stake in a company, they are highly motivated to deliver exceptional results, which rewards all shareholders. As Charlie Munger said, “Show me the incentive and I’ll show you the result.”

For our business, direct listing provided the financial resources and investor confidence we needed to accelerate the commercialization of electrokinetic technology, identify customers who are interested in purchasing this technology, and begin taking orders for our first product: the smart window insert.

We have tripled the size of our team with highly skilled and highly experienced engineering, marketing and manufacturing professionals, and as I write this in early February 2022, our first dedicated production facility is about to go live. line in Oregon – not far from the labs where Electrokinetic Film was developed, initially by Hewlett Packard and later by Crown’s research team, which includes a number of former HP engineers.

Now, before you rush out to file your S-1, be aware that there are significant hurdles to publishing via direct listing – some of which will be summarized below. But this is not meant to discourage you, just to prepare you. And remember: any management team that wants to access the public markets, via a direct listing or not, will have to pass these tests at some point:

  1. It’s laborious and difficult. The regulatory requirements for a publicly traded company far exceed anything that applies to private companies – and rightly so. Expect 6-12 months of intense work covering the FINRA public offering system, SEC filing requirements, and any questions financial regulators have about your documents. This work will of course culminate in an S-1 registration statement, tens or even hundreds of pages long, but the process is not limited to a single large filing shortly before your registration.

  2. It’s expensive. Understanding and demonstrating compliance with US securities law is difficult for even the most experienced business executive. You can’t do it alone and that means hiring lawyers (preferably the right ones). So while every business is unique, don’t be surprised if you rack up legal fees in the range of $500,000 to $1.5 million while pursuing a direct listing.

  3. This comes with considerable and indefinite scrutiny. This may be the biggest adjustment you will need to make. Becoming a publicly traded company requires a whole new level of transparency and accountability. Background checks. Public disclosure of financial performance. Timely reporting on events that have a material impact, good or bad, on your business. Extreme caution around company information and more. I have found that this outside scrutiny, however uncomfortable, ultimately leads to better results for your business, your customers and your shareholders. But this should take into account how you build your core team. More experienced founders, especially those who have helped run public companies, have a huge advantage over those who have not.

Bottom line: when you’re building and growing a startup, there are many ways to raise capital, and I’m not suggesting that a direct listing can or should be the only way. If you are more comfortable with venture capital funding and possibly an IPO or SPAC, stay on that path.

But I believe too many startups simply assume the VC path is the only one available and go down it without understanding the pros and cons and without fully evaluating the alternatives.

As Jay Heller, Vice President and Head of Capital Markets for Nasdaq, puts it: “Anything we offer to clients in an IPO, we offer in a direct listing. “

On behalf of myself and my management team at Crown, I believe direct listing is a more efficient, investor-friendly, results-driven way to raise capital as a startup. More start-ups should seriously consider it.

Originally posted on

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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