Discord Considering IPO (Initial Public Offering) 📈

Hey there! 👋

Discord, the popular communication platform known for its gaming roots, is reportedly exploring plans to go public through an Initial Public Offering (IPO). 

Let’s dive into what’s happening and how law firms could be affected.

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What's the deal? 🤝

Discord is widely recognised as a chat hub for gamers and various online communities. Now, the company is looking to initiate an IPO, which would convert it from a private company into a publicly traded entity. This transition allows parts of the company to be bought and sold on the stock market, which could drive further growth and innovation.

What is an IPO? 💡

An Initial Public Offering (IPO) is when a private company sells its shares to the public for the first time. This allows the company to raise money from investors in exchange for ownership in the company.

Here’s a super simplified version of how an IPO works:

1. Once a company decides to go public, investment banks are brought in to underwrite the offering and determine the share price.

2. The company files a detailed document (called a prospectus) with regulators (like the SEC in the U.S.) that explains its finances, business model, and risks.

3. With regulatory approval, the company and its underwriters decide on a final share price and determine how many shares will be available for sale.

4. Finally, the company’s shares are listed on a public stock exchange (like the NYSE or NASDAQ), so anyone can buy or sell them.

Why is Discord considering an IPO?

• Raising Capital: By offering shares to the public, Discord could raise a significant amount of funds. This capital can be used to improve its platform, build new features and expand. This is typically the primary motivation for pursuing an IPO.

• Boosting Credibility: Being listed on a major stock exchange can enhance a company’s visibility and reputation. It can make Discord more attractive to potential customers, business opportunities, and even top talent.

• Liquidity for Shareholders: An IPO offers liquidity to early investors and employees by allowing them to sell some of their shares. This can be a strong incentive for those who have supported the company from the beginning.

What challenges could Discord face if it goes public? 🚧

• Once public, Discord would face tighter rules and more detailed reporting requirements. This means extra work on paperwork and transparency, which can be a distraction from innovation and user engagement.

• Discord is a great example of a platform that has built a strong product with a loyal user base by prioritising user experience over aggressive monetisation. However, if Discord goes public, it could face increasing pressure from investors to deliver consistent financial growth. This often leads to changes like adding more ads, introducing paywalls, or pushing premium features — things that could disrupt the experience users love.

• Once on the public market, the stock market can be unpredictable. The pressure to deliver immediate returns might force the company to make decisions that sacrifice long-term vision.

How could law firms be involved?👩‍⚖️

Due Diligence: Before the IPO, lawyers would review Discord’s business, including its finances, contracts, and any potential legal issues, to identify and mitigate any risks.

Regulatory: Going public means you have to file a ton of paperwork with regulators like the Securities and Exchange Commission (SEC). Law firms help prepare and submit these documents to make sure Discord meets all the legal requirements.

Writing the prospectus: One of the key documents in an IPO is the prospectus — basically a detailed summary of what Discord does, how much money it makes, and what risks there are. Law firms help put this document together and make sure it’s clear, accurate, and legally sound.

Corporate Governance: Once Discord goes public, it will need to follow new rules around how the company is run. This includes having a board of directors, clear financial reporting, and ensuring they stay compliant with regulations. Law firms can help set up these new structures.

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I hope you enjoyed this article. See you next week! 👋

Written by Chirag Morar