What is a DPO?
A DPO is a tool that allows you to raise capital from both accredited (wealthy) and unaccredited investors and to publicly advertise the offering. To do a DPO, it’s necessary to first plan and implement a legal strategy to make sure everything is being done in compliance with state and federal securities law.
What kind of investment can I offer?
You can offer any kind of investment you like – equity, debt, revenue-based investment contracts, pre-sales, perks, etc. You can also offer more than one type of investment in your DPO.
Is this crowdfunding?
A DPO could be considered a type of crowdfunding because it allows you to raise money from a large number of investors with each investor able to put in a relatively small amount. However, this is different from the type of crowdfunding that is done on web sites like Indiegogo and Kickstarter. On those web sites, supporters can only contribute donations – they cannot invest. With a DPO, your supporters are purchasing an investment with the potential for a financial return.
Also, DPOs are not being done under the JOBS Act of 2012. When and if the crowdfunding exemption that was created by that law goes into effect, it will provide a new option for raising capital.
What is the minimum amount per investor?
You can set whatever minimum you like. Our clients have set their minimums in the range of $100 to $2,000. You can even set a different minimum for different kinds of investments and investors.
Is there a maximum number of investors?
No, but if you have more than 500 unaccredited investors in a single class of equity security or more than 2,000 total investors in a single class of equity security AND you have more than $10 million in assets, your company may be required to register with the SEC as a public company.
Are there platforms where I can list my DPO?
DPOs can be listed on CuttingEdgeX.com. There are no other platforms for listing DPOs at this time.
Can nonprofits do DPOs?
Yes. Any entity, regardless of whether it is a nonprofit, for-profit, co-op, benefit corporation, etc., can do a DPO as long as it can pay a return to investors. Nonprofits cannot sell equity so they offer debt securities in their DPOs.
What kinds of returns do DPO investors expect?
Our clients generally offer an annual yield (in the form of interest or dividend) in the range of approximately 3-4%.
How do DPO investors get their money back out?
There are several ways to handle investor exits. These include offering notes (debt) with a fixed maturity (i.e. date on which the principal must be paid back), offering equity with a redemption right (for example, after ten years the investor has the right to get his or her original investment back at a multiple of 1.2 times the original amount invested). It is also possible under some circumstances for DPO investors to sell their securities to another investor.
Can I raise money from across the US using a DPO?
DPOs generally require state-by-state registrations and therefore raising capital in a large number of states using a DPO can get expensive. However, there are ways to raise capital from several states using a DPO.
Can I raise capital from outside the US using a DPO?
In many cases, yes.
How long does it take to do a DPO?
It generally takes 4-8 weeks to develop the compliance strategy and prepare the necessary documents for submission to the securities regulators. It then takes an average of three months to receive approval from the regulators and begin the offering.
Is there a cap on how much I can raise?
This depends on the compliance strategy you use. If you are raising money within a single state there may not be a cap. If you want to raise money from multiple states, you will likely be capped at $1 million. Nonprofits have a special exemption which means that they generally do not have a cap on how much they can raise.
Can I combine a DPO with a private offering?
This depends on several factors. In some cases this is possible. In other cases, the two raises must be separated by six months.
What are the ongoing reporting requirements and compliance costs?
Generally they are quite minimal. Unlike doing an IPO which means becoming a public company, a DPO allows you to remain private. So you don’t need to make quarterly SEC filings. The state may require simple reports such as a final report of how much you raised in your DPO.
I am a start-up – can I do a DPO?
Yes! Some of our most successful DPO clients are start-ups. DPOs can be effective for both start-ups and established businesses and nonprofits.
How do I get investors?
In most cases, your investors will be your customers, community, colleagues, and friends. There may also be affinity groups for your product or service that would be interested in investing. CEC does not find investors for you but helps you develop strategies to find the best investors. We also offer some tools to help you get the word out:
What are some examples of DPOs that Cutting Edge Capital has worked on?
- Farm Fresh to You is offering loans to California residents – the interest is payable in credits for organic produce – they have raised approximately $2 million so far
- People’s Community Market is offering preferred stock to California residents to open a grocery store in Oakland – they have raised approximately $1.2 million
- Quimper Mercantile offered common stock in Washington state to open a community-owned store in Port Townsend – they raised approximately $750,000
- Real Pickles raised $500,000 by selling non-voting preferred stock to Vermont and Massachusetts residents
Can people invest their retirement funds in my DPO?
Yes! There is a tool called the Self Directed IRA that makes this a relatively simple process.
Cutting Edge Capital is a strategic practice of Cutting Edge Counsel.
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