Finance: Direct Public Offerings (DPO's)

Sophisticated Investor: Direct public offerings rare, but have targeted appeal - Financial - Specialty Finance - Financial Services - Personal Finance:

"Berrett-Koehler, a San Francisco-based book publisher, is looking to raise $1 million through a direct public offering of stock...

That's not to be confused with an initial public offering. And it shouldn't be mistaken for a private offering of stock to the public. [Not PPO's-WAA]

Instead, direct public offerings, or DPOs, are curious little financial animals that provide companies with much needed capital, usually small amounts, and investors with the chance to buy into a company they like and want to support. There are usually no financial middlemen or broker-dealers involved with the transactions. "

Since 1990, fewer than 2,000 companies have attempted to raise money through the direct sale of securities to investors under a small corporate offering registration, which provide an exemption from federal registration.

Of the companies that have attempted to raise money through a DPO, only about one-third succeeded, according to Dallas-based SCOR Report, a newsletter that tracks the industry. Moreover, of the 670 or so companies that raised money, about 166 have gone on to list on some form of secondary market, SCOR Report says.

The only way investors can cash out of their DPO investment is if a company lists on a secondary market or an exchange where they can freely trade their shares or if a company gets acquired and shareholders receive cash for their shares.

Ted Cohen, a securities attorney with the firm Spolin Silver & Cohen in Santa Monica, Calif., says DPOs are often difficult offerings to turn into viable long-term investments because they lack the follow-up a traditional investment bank can offer.

"Because of the media attention, Google was able to gain the public interest in a viable way to access the public markets, but that is rare," says Cohen.

Google last year issued public shares of stock in a Dutch auction offering, which is a quasi DPO because it limits the participation of investment banks/underwriters and puts the share-price and success of the offering directly in the hands of individual investors.

Underwriters create a secondary market for securities offerings by marketing and selling shares throughout the investment community. This provides investors with a way to cash in shares and immediately profit, the sticking point of a DPO.