A Direct Public Offering (DPO) is similar to an Initial Public Offering (IPO) in that stock is sold to investors, but unlike an IPO, a company uses a DPO to raise capital directly and without the assistance of an investment banking firm or broker-dealer. Following registration with the Securities and Exchange Commission and subject to compliance with state blue sky laws, a company can sell its shares directly to anyone, including; customers, employees, suppliers, distributors, family, friends and others. [1]
Most companies are able to complete a direct public offering within nine months and for less than $100,000. The process and time required to become public is very similar to the process utilized by large companies to complete an initial public offering, except that many DPOs are marketed via internet advertising and ads direct to consumers.[2] Some, like Manhattan microbrewery Spring Street Brewery, advertise the sale on the products they sell (Spring Street printed a notice on the back of every bottle of beer.)[3]
The advantages of a direct public offering include; broader access to investment capital, the ability to utilize stock to complete acquisitions and stock options to attract and retain employees, enhanced credibility and provides early investors with liquidity.
The disadvantages of a direct public offering include; the company must raise its own capital without the assistance of professional financiers, the process generally costs more than it initially attracts in investment capital, it takes management time and attention from business operations and there are ongoing financial and legal reporting requirements.
Any company following the applicable rules and regulations can go public by direct public offering. There are no sales, profit, asset or other traditional requirements or qualifications.
Direct public offerings are primarily utilized by small to medium size companies who are unable to attract the interest of an investment banking firm to represent them in a traditional initial public offering. Investment bankers represent companies which can attract and support large financing from which they can earn a commission.
Companies interested in completing a direct public offering must have:
After the Securities and Exchange Commission declares a registration statement effective and subject to compliance with state blue sky laws, a company may sell its shares to the public using a variety of methods. Upon completion of the public offering, the company may find a market maker to file an application for a trading symbol and stock listing.
Some companies attempt to organize their financial statements, audit and legal filings on their own, but many utilize direct public offering services offered by a consulting firm.
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