In the early 90’s, Direct Public Offerings (or “DPOs”) were the current rage in capital-raising. The SEC and some states streamlined the process for issuing DPOs, which lowered the resources required to get offerings out to the public. Direct Public Offerings allow entrepreneurs to sell investments in their businesses directly to the public, bypassing the traditional machinery of underwriters and exchange listings common to larger companies. With DPOs, any company could offer securities to the public without involving the investment banking community. More importantly, companies could legally advertise for investors. A number of successful DPOs were launched, from brewpubs to specialty retailers and beyond.
For some reason, DPOs became less of a topic within the investment community over the last few years. It’s possible that the robust real estate market and ready availability of venture capital bypassed the need for many entrepreneurs to consider a direct public offering as a viable option.
However, those days are behind us now. Entrepreneurs are finding it much harder to finance businesses by drawing from the equity in their homes. The venture capital industry has been decimated by the loss of capital within their funding sources- institutional funds such as insurance companies. Even banks, which were already poorly equipped to service the needs of startup companies, have become vastly more conservative in their lending practices.
While entrepreneurs were financing their businesses through other means, the Internet arose as the dominant communication vehicle of our culture. Never in history has it been so easy for anybody to reach countless millions of people quickly. The upswing in social networks is the latest phase of the online revolution that started with email and websites.
This ability to reach large numbers of people quickly could rejuvenate direct public offerings as a preferred vehicle for startup financing. After all, DPOs rely on the entrepreneur to market and distribute their investment opportunities. Before the Internet, this meant countless mailings, phone calls, and ongoing roadshows. Now it could be accomplished with online conferences, videos, blogs, and websites. Somebody is still going to have to see to it that potential investors are contacted and closed. But, the potential outreach of entrepreneurs has been increased astronomically with a corresponding decrease in costs to market.
Direct Public Offerings still represent a significant commitment of time and effort on the part of the entrepreneur. But, the overriding question that entrepreneurs have always asked- “How do I find investors for my project?” has been answered. You can use the Internet and a direct public offering.
Robert Coleman is the President of the Pacific Venture Club, http://www.pacificventureclub.com. You can reach him via email at
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Copyright 2009 Robert Coleman ALL RIGHTS RESERVED
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