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Direct public offering


Direct public offering also known as direct listing or direct placement is a type of offering where company offers securities directly to public in order to raise capital. It is considered alternative to initial public offering but unlike in IPO company that uses direct listing eliminates intermediaries like investment banks that underwrite stock, making stock price dependent on the market.

In direct listing employees and early investors convert their ownership into stock that is then offered to the public meaning that no new shares are issued which stops stock dilution. Because in DPO middle man in form of investment banks, broker-dealers and underwriters is eliminated it enables issuer to sell shares quickly, without the lockout period. It also makes the offering cheaper because there is no underwriting fees to pay and faster because there is fewer thing to manage than in traditional IPO. Underwriters  not only set the IPO price but they also organize roadshows, files registration statement and provides protection against low demand.

Number of shares that will be offered in direct listing depends on a number of shares that employees and investors want to list and sell but the price is dependent upon market demand, there is no safety net created by underwriters by guaranteeing sale of specified number of stock at the initial price. Direct offering is an opportunity to raise money independently without restrictions, excessive forms and requirements associated with IPO. In this case issuer dictates terms of the offering like offering price, minimum investment and maximum number of securities to be bought per investor, settlement date and offering period.

In the first stage, offering memorandum is prepared which describes the issuer and type of securities that are offered. Offering can be marketed  via newspapers, social media platforms, public meetings or telemarketing depending on company's needs and requirements. Compliance document with securities regulators under Blue sky laws that includes offering memorandum, article of incorporation and up-to-date financial statement must be filed. Approval usually takes between two  weeks and two months. DPO doesn't require registration with SEC and allows securities to be sold to both accredited and non-accredited investors. After capital is raised through direct offering company will not have trading platform but can choose to trade over-the-counter. Direct public offering is usually used by small companies and startups as a more affordable option than IPO.
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