Direct Public Offering
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A direct public offering (DPO) is a term that refers to a public offering of securities by enterprises to virtually everyone in their community or network. DPOs can take one of several regulatory pathways depending on the type of entity and the scope of the network.
What we like about DPOs. DPOs democratize capital by allowing both accredited and community (non-accredited or non-wealthy) investors to participate in the offering. By using a DPO, a business or nonprofit can market and advertise its offering publicly by any means it chooses — through advertising in newspapers and magazines, at public events and private meetings, and on the internet and through social media channels. DPOs can be focused on a single state or multiple states. DPOs are available to many different entity structures, including for-profit corporations, LLCs, cooperatives, and revenue generating nonprofits. Raising money through a DPO does not make the enterprise a publicly traded company and, in most instances, it does not require that the enterprise provide ongoing reporting to securities regulators.
The most common regulatory pathways for DPOs. Keep in mind that securities offerings, including DPOs, must comply with federal and state securities law. Below are the most common compliance strategies to comply with both tiers of regulations.
Nonprofit DPO. Nonprofits have their own federal exemption from securities registration and only need to look at regulations in the states they want to target for a capital raise. Many states also have securities offering exemptions for nonprofits but others, like California, require registering offering materials with state regulators. There is typically no limit on the amount that can be raised by a nonprofit.
Single State or Intrastate DPO. DPOs focused solely in one state are also exempt from federal regulations. Thus, DPOs that only permit residents from one state to invest need only to register offering materials in that state. Typically, there is no limit on how much can be raised in an intrastate DPO.
Multi-state or Rule 504 DPO. The federal rules permit multi-state offerings under Rule 504 but there is a $10 million cap imposed on raises in any 12 month period. Multi-state DPOs require registration with securities regulators in each state in which the offering is made.
Regulation A+ Offerings. Regulation A+ offerings are a type of DPO, but they do require significant filings with the Securities and Exchange Commission. The amount of the offering under this approach can be up to $75 million but the disclosure requirements are more onerous than other approaches. Read more about Regulation A+ offerings here.
State Specific Exempt Crowdfunding. Some states have enacted exemptions from registration for small offerings occurring exclusively within their state. If you use the single state exemption at the federal level and one of these exemptions at the state level your offering materials do not need to be filed with federal or state regulators. States typically impose limits as to the amount of money that can be raised under these exemptions. Some states also require that you only advertise your offering on specific platforms. Examples include Oregon, which has an exemption to allow small companies to raise up to $250,000 but must use a state approved platform to list the offering. Another example is Massachusetts, which has an exemption to allow for a raise of up to $1 million, or up to $2 million with audited financials, and does not require that the raise be listed on any platform thus allowing the issuer great leeway in how it can advertise the offering.
DPOs and Crowdfunding: What’s the Difference? A point-by-point comparison of DPOs with other crowdfunding options.
How long does a DPO take? A DPO involves three stages, and the amount of time it takes can vary quite a bit.
What are some exit opportunities for DPO investors? There are multiple strategies to consider: i ) exit strategies that are built in to the security itself; ii) those that may arise based on future events; iii) those that may be available on an investor’s initiative; and iv) trading mechanisms that may be available.
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