Is a Direct Public Offering Right for Me?

By Andy Bamber

Capital raising can be difficult, especially when you’re stuck with the wrong approach.

Whether you’re raising capital from private investors, appealing to banks for loan financing, looking to the “crowd” for donations, or offering your community of customers and supporters an investment opportunity through a Direct Public Offering, raising capital requires a considerable commitment of your already limited time, effort, and resources as an entrepreneur.

If you’re thinking about pitching private investors, you’ll have to ask yourself if you want to give up equity in your company. For a loan, you’ll need to think about the “5 C’s” of credit, a method used by lenders to determine the creditworthiness of potential borrowers—character, capacity, capital, collateral, and conditions.

If you’re considering crowdfunding, you’ll want to weigh such things as the appeal of your project to a wider audience, the low overall success rate of crowdfunding campaigns (40%) and the relatively small amounts that are usually raised ($1,000-$10,000). Another question to ask is whether you’re willing to commit the time and resources to launching and running a successful online crowdfunding campaign, including the preparation and delivery of any perks.

Every day we speak with amazing entrepreneurs who want to know more about DPOs—the typical raise amount, the timeframe to funding, and the types of securities that can be offered. At the end of the conversation, we’re often asked, “Is a DPO right for me?”

While a DPO can be used by any business, nonprofit or hybrid to raise capital, there are a handful of questions that entrepreneurs might want to consider asking themselves before they take the DPO plunge.

In general, we’ve found that if you can answer “yes” to most of the questions below, you are likely be successful in a DPO.

  • Is your business something that might excite potential investors or appeal to a particular affinity group? For example, do you find that your customers love you and want to be your fans on Facebook? Are you invited to speak about your business at conferences?  Do people get excited when talking about your business model?
  • Does your team have a reputation for integrity and honesty? Is your past free of any “red flags” that might make people think twice about investing in your business?
  • Do you have a track record of running a successful business?
  • Is your business model easy to understand for the average person or at least to a decently-sized affinity group?
  • Do people tell you they would love to invest in your business?
  • Do you have a network of contacts and affiliations that could serve as a channel to get the word out about investing in your business? Examples could include your place of worship, professional associations, neighborhood groups, etc.
  • Are you comfortable with promoting your business to potential investors? Are you willing to “pitch” the investment or do you have someone else on your team who can?
  • Do you or someone on your team have time to devote to a fundraising process? You may need to devote several hours per week to communicating with potential investors and completing compliance work.

As you’ll notice, the elements that contribute to a successful DPO are some of the same elements that make any entrepreneur or business successful—a strong product offering, a sound business model and a robust network of personal and professional contacts.

Of course, when it comes to raising capital, entrepreneurs have different skills, interests, and organizational capabilities to draw from (rarely does an entrepreneur answer a resounding “yes” to all of these questions). The good news is that if you are interested in raising capital through a DPO, there are concrete steps you can take—before and while you go through the DPO filing process—that can improve your “DPO readiness” and ability to successfully reach investors.