An Introduction to Direct Public Offerings
If you’ve been in the investing world for any amount of time, you’ve definitely heard about an Initial Public Offering (IPO). This is essentially where a company decides it’s going to go public and sell shares of ownership to people outside of their business, looking to raise money for their enterprise. And while it can be a pretty exciting time to jump on an IPO right off the gate, the fact of the matter is that because IPOs use investment banks as an intermediary before you even come close to having the chance to invest in the stock you’ll have to pay a significant amount of money upfront.
Luckily, when you decide to move forward with a Direct Public Offering (DPO), all of those expenses fly right out the window. In fact, the overwhelming majority of IPOs throughout history have cost at least $1 million – and very frequently much more than that – just to get the ball rolling. You’ll have to pay for legal fees, accounting fees, filing fees, listing fees, marketing to get the word out there, and a whole host of other things that jack the price of this round of investing through the roof.
But with a Direct Public Offering, you’re able to offer your securities directly to the general public. This slices out the middleman immediately – there is no need to use an investment bank as a go between – allowing you to not only keep more of the money that you raise for your business, but also allowing you to save cut some serious costs that we outlined above.
The other reason you may be interested in moving forward with a Direct Public Offering is simply because they are so much simpler to handle all on your own, with very little assistance needed from competent lawyers, accountants, and trusted financial advisors. In fact, the process to go through with a Direct Public Offering can almost be done entirely all on your own – and though you’ll obviously want to leverage any and all professional and expert assets you have access to, ensuring that things are done exactly in the way you expect.
Because Direct Public Offerings are almost always smaller investment runs then you would be looking at doing a traditional IPO, you can often avoid having to handle any federal filings so long as you keep the DPO inside of the state you are incorporated in. It suggested that you sell your securities in blocks of 500 investors at a time – though you can go over this number without any legal issues (including investors that are accredited or unaccredited) it’s just not advisable.
All in all, if you’re looking for the kind of access to funding that your business requires without going through all of the hassle, headache, and financial obligations right off the bat that and IPO brings to the table, you’ll want to spend a significant amount of time researching and understanding the benefits of a Direct Public Offering.