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The Do- It- Yourself Public Offering 183
In a DPO, a company sells shares to the public, as in a traditional
IPO. The main difference is that the company sells the
shares directly, rather than going through a Wall Street intermediary—the
investment banking underwriters that take a standard
7 percent cut of the offering. As with crowdfunding models that
cut out fi nancial middlemen, DPOs reduce the costs of raising capital.
DPOs can be cost effective for offerings as small as $50,000,
although they typically range from $1 million to $3 million.
Moreover, they give ordinary investors an opportunity to participate
in the type of high- risk, high- reward investments typically
reserved for venture capitalists and accredited investors.
What exactly is entailed? In a traditional IPO, the Wall Street
underwriter handles a number of things: It prepares the prospectus
and fi les documents, conducts a road show to promote the
deal to institutional investors, and ensures that there is a wellprimed
market for the securities once they are publicly traded.
In the case of a DPO, the company issuing shares takes on these
responsibilities itself, usually with the help of an attorney or
accountant. The cost savings can put the public offering option
within reach of smaller companies that otherwise could not
afford it. DPO expenses can range from a few thousand dollars
for extreme DIY cases to tens of thousands of dollars with more
professional assistance. DPOs fi ll a signifi cant gap for companies
looking to raise tens of thousands of dollars up to several million
dollars.
Getting in on the Ground Floor
DPOs are a fairly new phenomenon. They may have been technically
feasible, but it wasn’t until 1980, when Congress passed the Small
Business Investment Incentive Act, that state and federal authorities
began to pave the way for many small, private companies to more easily
tap the public markets. In response to the Act, the Securities and
Exchange Commission and state regulators created a series of exemptions
and streamlined options for small business capital- raising that
eliminated onerous regulatory requirements. Today, most DPOs are
conducted under one of the following federal exemptions: