Reverse Merger, IPO Or Direct Public Offering (DPO), Which One Is Right For You?
A direct public offering is when a company raises capital by selling its shares directly to what is refer to as affinity groups, unlike an IPO which are sold by a broker dealer to its customers and the general public through other broker dealers who have customers interested in buying shares in the business.
In IPO's you have a firm commitment underwriting, where the underwriters promise to buy the securities for their own account if they can't sell them to clients.
Best-effort underwriting: The underwriters don't guarantee any particular number of shares to be offered, they just act as agents.
Within an IPO the lead underwriter is refer to as the syndicate manager, he keeps the book and invites other broker dealers to join the syndicate. Within a company commitment underwriting, an oriental underwriters arrangement makes members accountable for any unsold securities, irrespective of how much of the allotment they sold. The oriental underwriting agreements have joint and several liability.
A western underwriting a agreement: In a firm commitment underwriting, it makes underwriters liable severally but not jointly. If one syndicate member can't sell its entire allotment, only he should purchase the unsold securities.
In a direct public offering the company sells the shares to affinity groups, who fall in this class? Clients, suppliers, distributors, friends, employees and other members the community.
In a direct public offering the company put its shares in the hand of people that are knowledgeable about the organization and know the firm's product and direction, and are most likely to hold the stocks longer because they feel comfortable with the provider's prospects for the future.
Direct public offerings are considerably more affordable compared to IPO's and many successful for smaller offerings, for large offerings the sales personnel and customer base of a broker dealer are usually essential.
Since the affinity group is already knowledgeable about the business and its practices it does not put pressure on the company to alter the way it does business, and will remain loyal to the company due to it's existence in the community.
DPO's are preferable to venture capital financing since it enables the existing management to execute its business plan without external interference. When a small company turns into one large investor they are inclined to surrender the liberty to make all the choices.
In a DPO like other process of going public today audited financial statements are required, unlike a reverse merger you select your shareholders and you do not have to handle dishonest, unscrupulous shell owners.
Shell owners usually keep between 5-15% of the shares outstanding and are quick to liquidate, and moreover they don't have an interest in the wellbeing of the provider's share price. Even if you add a stipulation in the contract they can't sell for a year they'll find a means of shorting the stock and ruining the share price.
This make DPO a preferable choice even for businesses that don't require financing but want to go public. If you're in the sort of company that maintain records of your client so as to bill them for follow ups you already have a head start.
You Have to be able to contact those affinity group so as to Promote the shares to them, a popular business with a lot of customer but does not have the contact info is at disadvantage because it is unable to contact its customer.
There are different ways to advertise the business's stock for instance a medical supply company might try calling physician in the region or by buying a mailing list.
However, the best way is when you have an established relationship with your affinity group and are in constant contact with them, by email, newsletter, or email.
Sometime a provider or distributor might want to buy an interest in the organization in order retain the company and keep competitors from stealing the customer.
A DPO doesn't always require audited financials but if you're planning on going public you may need them. That means you have to hire an auditing company. A foreign company must use a Certified International Accounting Firm.
An excellent Attorney who has experience with Direct Public Offerings, one that's knowledgeable about the process and doesn't need to waste time exploring and learning.
You have to prepare sales material which offers a whole lot of information regarding the business, you need investors feel that your organization has a future.
You always need to have a business strategy, it is going to show investor you have plan for making the business succeed and doing it one step at a time.
By setting dates for the execution of each step in your plan it shows investors that you have things well under control, but allow some time in the event you must make adjustments.
If you would like to take your business public then you have to submit a form SB with the Securities and Exchange Commission and a form 15c211 must be filed with the NASD.
A DPO is an alternative to an IPO or Reverse Merger for a company wishing to go public or obtain funding, it allows the business owner(s) to call the shots rather than an underwriter or a shell owner.