This is common question and the answer is – it can vary quite a bit.
There are three stages of a DPO:
- preparation
- compliance filing
- selling the investment opportunity
Preparation
The preparation to do a DPO can take as little as a few days or several months. This process involves
- ensuring that the entity that is making the offering (the “issuer”) is in good shape – making sure any previous financings complied with applicable securities law; the entity has clean and up-to-date financials; the required legal formalities for the entity have been observed; etc.
- deciding what type of security to sell (sometimes the kind of security you want to sell will not be consistent with your entity type and you will need to convert to a different kind of entity)
- preparing an offering document that describes the issuer and the offering
- preparing legal documents for the offering – for example, promissory note, stock certificate, purchase agreement, etc.
Compliance Filing
This is the submission of a package of compliance materials to the state securities regulators in every state where you will be offering securities. These materials include your offering document, specimen security, formation documents, financials (usually not required to be audited or reviewed), an attorney opinion (not always required), etc.
From the date of submission to the date you receive regulatory approval to conduct your public offering can be as little as three weeks and as much as six months.
The factors that affect this timeline include the following:
- some states are simply faster and more friendly to direct public offerings
- anything in your offering that is unusual will likely generate questions from the regulators – each round of questions can add a month or more to the process
- regulators will sometimes send you many rounds of questions even if your offering is straightforward and your company has a good track record – some of them feel very compelled to look under every possible rock before approving your offering
- if you request anything special like confidential treatment of your financials, this can add time to the process
- there are times of year when the securities regulators are especially busy
- some states do “merit review” and other states do “disclosure review” – merit review means the states look at whether the offering is likely to pose a risk to the investing public while disclosure review simply looks at whether there is sufficient disclosure – merit review usually takes longer
Selling the Offering
Once you receive approval from the regulators, you can sell to the public (subject to any limitations imposed by the regulators and the applicable law).
Generally, you have one year to raise funds. You can renew the application every year and continue to raise funds indefinitely.