Direct Public Offering (DPO)

Direct Public Offering (DPO)

Key takeaways

• A direct public offering (DPO), also called a direct placement, lets a company sell securities directly to the public without using underwriters, broker-dealers, or investment banks.
• Eliminating intermediaries reduces costs and gives the issuer control over offering terms.
• DPOs often rely on federal and state exemptions (e.g., intrastate exemptions, Rule 147) to avoid SEC registration, though requirements vary by state (Blue Sky Laws).
• DPOs can be illiquid if securities are not listed on an exchange and may trade OTC unless arranged otherwise.

What is a DPO?

A DPO is a method for a company to raise capital by offering securities—common or preferred shares, REIT interests, or debt—directly to the public. The issuer self-underwrites and defines the offering terms (price, minimum investment, allocation limits, offering period, settlement date). Because it cuts out underwriters, a DPO can be an economical option for smaller firms or companies with a loyal customer base.

How a DPO works

1. Issuer decides the securities to offer and sets terms (price, minimums, caps, timeline).
2. The company prepares an offering memorandum describing the business, the securities, and up-to-date financials.
3. The issuer files required compliance documents under each state’s Blue Sky Laws where the offering will be made; many DPOs rely on federal exemptions and do not register with the SEC.
4. The firm markets the offering directly (advertising, social media, public meetings, telemarketing, etc.).
5. After regulatory approval, the company publicly announces the offering (commonly via a tombstone ad) and accepts subscriptions.
6. If the offering has a stated minimum and that threshold is not met, the offering is canceled and investor funds are returned; oversubscriptions may be filled first-come or prorated.

Companies sometimes hire commission brokers on a best-efforts basis to sell some securities when volume or timing necessitates outside help.

Note: In December 2020 the SEC clarified that companies may raise capital through direct listings—allowing public offerings without traditional IPO underwriters—which expanded direct-listing options and in some cases allows primary capital raises via that route.

Timeline and preparation

Time required: preparation can take from a few days to several months, depending on the issuer and state-level review timelines.

Key preparatory steps:
* Draft an offering memorandum and financial statements.
Choose marketing channels and investor outreach strategy.
File compliance documents in each state of sale; wait for state approvals (weeks to months).
* Decide trading path (OTC, exchange listing via direct listing, or other arrangements).

How DPO securities trade

• DPOs do not automatically get listed on major exchanges the way IPOs typically do.
• Unregistered DPO securities commonly trade in over-the-counter (OTC) markets, where liquidity can be limited.
• Some companies use a direct listing to place shares onto an exchange without underwriters; exchanges have accepted direct listings for several large firms.
• Unregistered issuances may not meet Sarbanes–Oxley or exchange listing requirements, increasing regulatory and liquidity risk.

Advantages and disadvantages

Advantages
* Lower capital-raising costs (no underwriting fees).
Issuer control over pricing, allocation, and timing.
Greater flexibility than bank or VC financing; can include non-accredited investors and customers.

Disadvantages
* Potentially lower liquidity and marketability if not exchange-listed.
Greater burden on the issuer to market and manage the offering.
State-by-state compliance can be time-consuming.
* Lack of underwriters means no price support during trading, which can increase price volatility.

Examples

• Ben & Jerry’s (1984) — Raised about $750,000 by offering shares directly to local supporters.
• Spotify (April 2018) — Used a direct listing to make shares available on an exchange without underwriters.
• Slack (June 2019) — Debuted via direct listing on the NYSE (later acquired by Salesforce).
• Coinbase (January 2021) — Public listing via a direct-listing method.

When a DPO makes sense

• Small to mid-size companies with a strong, reachable investor base (customers, community, suppliers, employees).
• Firms seeking to avoid underwriting fees and retain full control over offering terms.
• Companies prepared to manage distribution, marketing, and regulatory compliance themselves.

Final note

A DPO is a flexible and often lower-cost way to raise public capital, but it shifts marketing, regulatory, and distribution responsibilities to the issuer and can result in limited post-offering liquidity. Companies should weigh cost savings and control against execution risk and potential investor-market limitations before choosing a DPO.