Direct Public Offering (DPO) Explained | Happy Investors

What is a Direct Public Offering (DPO)? How does a DPO work? And how can I buy a DPO? In this article, we at IPObeleggen.co.uk explain the basics. After this article, you will know what a Direct Public Offering means, and how DPOs work. We also cover the buying procedure. Finally, we compare DPOs with IPOs, ICOs and SPAC, and discuss the risks in detail.

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Watch out: at Happy Investors we do not recommend to buy DPO! It is a high-risk investment. At Happy Investors we became financially free with long-term investing. We only invest in proven markets based on our expertise, such as real estate investing, value stocks and ETF investing.

What is Direct Public Offering (DPO)?

Direct Public Offering, short for DPO, is the process of selling shares of a company directly to the public without an investment bank. DPOs are a great way for small businesses to increase liquidity in the market and create a large pool of investors. This crowdfunding method also makes it easier for investors to buy company shares, bypassing the need for intermediaries.

For private companies that needed funding for expansion and growth, selling stock to the public through IPOs was often the only option before the establishment of DPOs. In an initial public offering (IPO), securities are sold through underwriters or brokers to institutional and retail investors. However, Direct Public Offering allows companies to avoid paying transaction costs associated with selling shares privately through an investment bank or other brokerages. Moreover, DPOs are exempt securities offerings, meaning that companies that choose this form of the offering are not required to register or report with the SEC. 

How does a DPO works?

Issuing securities via a DPO allows a company to raise capital independent of venture capital or financial institutions. It is up to the issuer to customize and guide the DPO process in the firm's best interest. Generally, the issuer sets the offering price, restricts the total number of securities investors may purchase, and sets the reporting requirements. Furthermore, they specify the period in which investors can purchase securities before the exercise is closed and the date on which the securities will be settled.

A DPO must be prepared within a set time frame, and it can sell certain securities. Various types of securities can be issued through a DPO, including REITs, preferred shares, common shares, and debt securities. The timeline for a DPO can vary from a few days to several months, depending on the company. Before a company offers its securities to the public, it needs to decide what type of investments it wants to offer, then present a memorandum that details the issuer's background and possible offerings. Afterward, it's up to the company to decide how its securities will be marketed - through print, digital, or social media ads, public meetings, or a combination.

How to buy Direct Public Offering?

Buying DPO (Direct Public Offering) is a simple process that you can do online. You don't need to be an expert to make your purchase, but it is essential that you know what you're doing.

First, you have to determine whether or not the company will be selling its shares on the open market or through private placement. If they're going to be selling shares in the public market, then you'll need to find a broker who can help you with this process. Most companies that issue DPOs sell shares through brokers since brokerage services are much faster than direct sales.

Once you have found the broker, do a bit of research on the company and its products or services. And other details, such as the price of the securities, the number of securities being offered, and the terms of the offering. To make an informed decision, you'll need to know what kind of investment return is expected from their business and how much money is needed for them to reach those goals. You can then place your order with the company or its broker-dealers. 

Typically, you will need to provide your contact information, the number of securities you want to purchase, and the payment method you will use to complete the purchase. However, brokers can give you more details about how the process works. There are a number of online brokers that offer DPO trading, including freedom24, eToro, and Mexem.

1. Freedom24

Freedom24 is a popular choice among new investors because it's easy to use, fast, and has low fees. You can buy and sell shares quickly with their site, and they also offer a live chat feature that lets you talk directly with an advisor about your investment goals. If you're looking for a broker who can help you get started investing in the stock market, then Freedom24 is a great option.

2. eToro

eToro is another great online broker from where you can buy DPOs on the go, they also have mobile apps that let you trade almost anywhere. Just download the app and follow the simple steps to get started trading with eToro. You can also set up alerts that will notify you when certain stocks hit certain milestones so that you'll always be aware of what's going on in the market at all times.

3. Mexem

If you are new to investment and don't have previous expertise - you might want to consider buying securities through Mexem. They can provide guidance on the process and help you make informed decisions about your investment. Moreover, they can handle many of the logistical details of the transaction for you. They will also give you access to a broader range of DPOs than you might be able to find on your own. It can provide more opportunities to diversify your portfolio and potentially increase your returns.

Other good brokers are: Ally, Vanguard, Interactive Brokers, DEGIRO, et cetera.

All brokers allow you to buy DPOs in a way that is similar to buying other types of stocks, such as shares or ETFs. The main difference is that the platform they use to facilitate this process has access to more information than other brokers, which allows them to make better recommendations on which companies are good investments for their customers.

Risks of Direct Public Offering

There are a few potential risks associated with raising capital through a DPO:

1. One primary risk is that companies can only raise a limited amount of funds through a DPO. It is because DPOs are subject to the "small issuer" exemption, which limits the number of securities that a company can sell in a 12-month period. Therefore, companies that need to raise more significant amounts of capital may need to consider other financing options.
2. Another risk associated with DPOs is that they can be more volatile than initial public offerings (IPOs). It is because DPOs often do not have the same level of investor demand or market support as IPOs. That can lead to greater price fluctuations in the company's stock, which can be unpredictable and risky for investors.
3. DPOs do not have the same level of underwriting as IPOs. Underwriting is the process by which an investment bank or broker assesses the risk and potential of a company's securities and then helps to sell those securities to investors. Without this support, it can be more difficult for companies to raise capital through a DPO.
4. The complexity of SEC's requirement: A state's or the SEC's requirement for DPO can be time-consuming, expensive, and challenging.

Direct Public Offering (DPO) vs. Initial Public Offering (IPO)

In the public markets, companies most commonly raise capital through initial public offerings (IPOs). In spite of the fact that both DPOs and IPOs are the most common ways companies raise money, they differ in several ways. Firstly, no underwriters are involved in a Direct Public Offering (DPO). In contrast, an IPO involves several third parties and the creation of new shares.

Secondly, the public preparation process for a Direct Public Offering (DPO) is handled by financial advisors. Meanwhile, IPOs are facilitated by underwriters or third parties who charge commissions for their services. Thirdly, when a company issues an IPO, its stock is locked up, so accredited investors, shareholders, and executives cannot sell their shares immediately. However, a DPO allows executives and other shareholders to sell their shares at the market price, with no lockup period.

When a company issues stock through a DPO, it is usually cheaper and faster than if it issues stock through an IPO, where financial institutions must underwrite the issuance. IPOs involve companies going public through the distribution of shares among specific brokerage firms. After that, the brokerages can also impose restrictions on who may participate in the IPO.

DPO vs. SPAC 

The biggest difference between DPOs and SPACs is how they're funded. In a DPO, investors buy shares directly from the company's management team. In a SPAC, shareholders purchase shares from an entity that will later be responsible for raising capital through an IPO. A DPO is a method used by a company to go public and sell its securities directly to the public, while a SPAC is used to raise funds for the purpose of acquiring one or more private companies.

A DPO may not raise as much capital as a traditional IPO, as it does not involve the sale of new shares. A SPAC raises capital through an IPO and uses those funds to acquire one or more private companies. Also, DPO can be riskier for investors, as there is no underwriter to provide due diligence and ensure that the offering is suitable for investors. A SPAC, however, may be seen as less risky, as the company has a specific acquisition target in mind and has completed due diligence on the target prior to the acquisition.

DPO vs. ICO 

Direct Public Offering (DPO) and Initial Crypto Offering (ICO) are both methods of fundraising. However, a DPO involves the sale of securities, such as stocks or bonds, which represent ownership in the company. An ICO, on the other hand, involves the sale of tokens, which do not represent ownership in the company but may provide access to a product or service offered by the company.  

Secondly, DPOs are subject to regulation by the Securities and Exchange Commission (SEC) in the United States, while ICOs are largely unregulated. A DPO will also give investors more control over the management of their funds, whereas an ICO does not provide this level of control. Thirdly, a DPO is used by a company to go public and sell its securities directly to the public, while a company uses an ICO to raise funds for a specific project or venture.