Pre IPO Insights
Direct Public Offering

6 May 2022

Direct Public Offering: Guide to Inclusive Investment Landscape

Direct public offerings are designed to give small businesses access to the public capital markets. Unlike IPOs (initial public offerings), the process is less complex and cheaper. Are you an entrepreneur or a potential investor? Here are various things you should know about a DPO.

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Table of Contents

What is Direct Public Offering

A DPO (direct public offering) is an offering where an organization directly offers its securities to the public to acquire capital. An issuing firm using a DPO eliminates the intermediaries: the underwriters, broker-dealers, and investment banks, which are common in IPO (initial public offering).

By getting rid of the intermediaries, private placements reduce the cost of raising capital for a direct public offering. As a result, a DPO is attractive for startups, small companies, and institutions with a loyal and established client base. DPOs are also referred to as direct placements.

How does a Direct Public Offering Work?

When issuing securities via a DPO, a company raises capital independently without the limitations involved when working with venture capital and financial institutions. The terms of the DPO depend on the issuer, who customizes and guides the process based on the firm’s best interests.

The issuer establishes the offering price and limits the total securities an investor can purchase, the reporting requirements, and the minimum investment for each investor. They also define the offering timeframe for investors to buy the securities before the exercise is closed and the settlement date.

On December 22, 2020, the U.S. Securities and Exchange Commission (SEC) authorized companies to raise money via direct listings, bypassing the conventional IPO process. In the direct listing, organizations trade their shares without relying on investment banks to underwrite the process. Besides saving on fees, firms that use the direct listing process avoid IPO limitations, such as lockup sessions that bar insiders from disposing of their shares for a specific period.

What is a Direct Offering Vs Public Offering?

A direct and public offering are similar because private companies can use both methods to go public and start selling common stock in the open market. An IPO is a conventional method that organizations have used to go public in the past. However, DPOs are fast becoming popular. An initial public offering usually issues pre-market IPO shares, but a direct public listing starts trading immediately on the exchange when the market opens.  

Going public through a DPO is usually cheaper and faster than through an IPO, where one or even more financial institutions have to underwrite the issuance of stock. When companies go public through an IPO, the underwriters circulate shares among specific brokerages. The brokerages then instill restrictions on who should or should not participate in the initial public offering.

DPOs create a common playing field where stocks are listed in the market for everybody to access. While the availability of shares depends on early investors, prices are based on market demand. As a result, DPO can be riskier than IPO because market swings and volatility mar them.

Is Direct Public Offering Good?

A DPO can be ideal for startups and small businesses that may not gain from an IPO. Many entrepreneurs believe that DPOs are better than IPOs because they don’t have to pay back any raised capital.

What does it Mean when a Company makes a Direct Offering?

Organizations that use direct listing do so not to raise capital but enjoy the benefits of being a public company, like enhanced liquidity from current shareholders. Any firm that chooses to go public through a DPO should have a particular profile. For example, it has to be appealing to the market. Here are the characteristics of companies that go public via a DPO.

  • They are customer facing and have a solid brand identity
  • Do not require significant extra capital
  • Have easily understandable business models.

Popular companies that went public via direct listings include Slack and Spotify. The companies had solid brands and reputations before going public.

Advantages of Direct Public Offerings

Here are the advantages of direct public offerings:

Advantages of Direct Public Offerings

Accessibility and Inclusivity: One of the primary advantages of DPOs is their accessibility to a wide range of investors, including retail investors who may not have had the opportunity to participate in traditional Initial Public Offerings (IPOs). This inclusivity empowers smaller investors and local communities to invest directly in the growth of a company.


Direct Public Offerings are often more cost-effective compared to traditional IPOs. Companies can save substantial amounts on underwriting and investment banking fees that are typically associated with IPOs. By avoiding these intermediary costs, businesses can retain more capital for growth and operational purposes.

Direct Engagement with Investors

DPOs facilitate a direct relationship between the company and its investors. This direct engagement enhances transparency, builds trust, and fosters a strong sense of ownership and commitment among shareholders. Companies can communicate their vision, mission, and progress directly to their investor base.

Flexibility in Pricing

In a DPO, companies have greater flexibility in setting the offering price. This can help align the company’s valuation more closely with its actual performance, growth prospects, and market conditions, potentially leading to a more accurate reflection of the company’s value.

Market Timing

DPOs offer companies the flexibility to choose the timing of their offerings based on market conditions and their own strategic considerations. Unlike IPOs, which often involve more rigid schedules, DPOs allow companies to launch their offerings when they believe it’s most advantageous.

Long-Term Investor Base

DPOs tend to attract long-term investors who are genuinely interested in the company’s success and are willing to hold onto their shares for an extended period. This can lead to a more stable shareholder base and reduced volatility in the stock’s price.

Reduced Volatility

Since DPOs often involve a broader base of retail investors and long-term shareholders, the stock may experience lower short-term volatility compared to IPOs that can be influenced by speculative trading.

Regulatory Benefits

DPOs can offer certain regulatory advantages. The regulatory process for a DPO may be less complex and time-consuming than that for a traditional IPO, allowing companies to raise capital more efficiently.

Enhanced Public Relations and Branding

Going through a DPO can generate positive public relations and branding opportunities for a company. It showcases the company’s commitment to transparency, inclusivity, and engaging with its stakeholders.

Empowerment of Local Communities

DPOs provide an avenue for companies to involve local communities in their growth and success. This can foster a sense of pride and ownership among residents, contributing to positive community relations.

What are the Risks and Benefits to a Company Making a Direct Public Offering?


The opening stock price depends on market demand and potential fluctuations. The company and its board of members cannot determine the price for shares.

Organizations could spend more on financial advisors than on IPO underwriting fees.

A DPO is limited by the number of shares existing investors and employees sell on the open market.


More liquidity for existing shareholders

Companies don’t struggle with the FINRA valuation review process

It’s a safe path, according to the stock exchange and SEC experts

What is the difference between a Direct Public Offering and a Public Offering?

The core difference between an IPO and a direct listing is that the former issues new stocks while the latter trades existing stocks.

Unlike public offerings, the direct listing does not involve underwriters. Selling at discounts and leveraging underwriters increases the cost and time for the organization to issue new shares.

A direct listing process does not come with the lockup period, as with IPOs. In conventional IPOs, organizations have lockup periods that bar existing shareholders from trading their shares on a public market.

Existing shareholders in direct listings can trade their shares immediately after the company goes public. There is no issuance of new shares, meaning that transactions only happen if the shareholders trade their shares.

Timeline of a Direct Public Offering

The time required to develop a DPO varies from a few months to a few days. During the development phase, the company launches an offering memorandum describing the issue and the security that will be traded.

Securities suitable for selling via a DPO include preferred shares, common shares, and debt securities. The firm can also market the securities via social media platforms, magazines or newspaper ads. Before publicly availing the securities, the issuing firm prepares compliance documents for filing with the securities laws body of each state where they will be running a DPO.

The documents usually include updated financial statements, articles of incorporation and the offering memorandum. Based on your state, getting regulatory consent on a DPO prospectus application can take two weeks to two months.

Many DPOs don’t ask issuers to register with the SEC (Securities Exchange Commission) regulation D since they qualify for some federal securities laws and crowdfunding exemptions. For instance, Rule 147 or intrastate exemption bars registration with the SEC regulation A if the firm is registered in the state where it’s offering securities.

Key Steps in Executing a Successful Direct Public Offering

Executing a successful Direct Public Offering (DPO) involves careful planning, preparation, and execution. Here are the key steps to consider when embarking on a DPO:

Assessment and Readiness

  • Evaluate the company’s financial health, growth prospects, and suitability for a DPO.
  • Determine if the company meets regulatory requirements for conducting a DPO.

Legal and Regulatory Compliance

  • Engage legal and regulatory experts to ensure compliance with securities laws and regulations.
  • Prepare and file the necessary registration documents with the appropriate regulatory authorities (e.g., SEC in the United States).

Company Valuation and Pricing

  • Conduct a thorough valuation of the company to determine a reasonable offering price.
  • Consider market conditions, financial performance, growth potential, and industry comparables.

Disclosure and Due Diligence

  • Prepare comprehensive disclosure documents, including a prospectus or offering circular, that provide detailed information about the company’s operations, financials, risks, and management.
  • Conduct thorough due diligence to ensure the accuracy and completeness of the disclosed information.

Investor Engagement and Education

  • Develop a clear and compelling narrative that communicates the company’s mission, vision, growth strategy, and value proposition to potential investors.
  • Create educational materials and presentations to help investors understand the DPO process, the company’s industry, and its financials.

Marketing and Promotion

  • Design a comprehensive marketing strategy to reach a broad audience of potential investors.
  • Utilize digital platforms, social media, and traditional marketing channels to raise awareness about the DPO and generate interest.

Engagement Events

  • Host investor roadshows, webinars, and informational sessions to connect directly with potential investors and answer their questions.
  • Highlight the company’s unique strengths, competitive advantages, and growth opportunities.

Technology and Platform Selection

  • Choose an appropriate platform or service provider to facilitate the DPO process, including investor verification, document distribution, and fund collection.
  • Ensure the chosen platform complies with regulatory requirements and offers a user-friendly experience.

Investor Verification and Subscription

  • Implement a robust investor verification process to comply with regulatory “Know Your Customer” (KYC) and anti-money laundering (AML) requirements.
  • Allow investors to subscribe to shares through the chosen platform, providing secure payment options.

Closing and Allocation

  • Once the subscription period ends, review investor subscriptions and allocate shares based on the offering terms and investor commitments.
  • Complete the closing process, including the transfer of funds and issuance of shares to investors.

Post-Offering Reporting and Compliance

  • Fulfill ongoing reporting obligations as required by regulatory authorities.
  • Maintain open communication with investors, providing regular updates on the company’s performance and developments.

Steps After a Successful DPO

After successfully completing a Direct Public Offering (DPO), a company enters a new phase of its corporate journey as a publicly traded entity. Here are the key steps to consider after a successful DPO:

Compliance and Reporting Requirements

Ensure that your company complies with all regulatory requirements, including ongoing reporting obligations to the SEC if applicable. This may include filing annual, quarterly, and current reports.

Investor Relations

Establish or enhance your investor relations department or function. This team is responsible for managing relationships with shareholders, answering inquiries, and providing transparent and timely information to investors.

Financial Reporting

Implement robust financial reporting and accounting systems to meet public company standards. Hire or retain experienced professionals to oversee financial reporting.

Corporate Governance

Strengthen corporate governance practices, including the composition of your board of directors, audit committees, and compliance committees. Ensure that the board consists of independent directors.

Communication Strategy

Develop a comprehensive communication strategy that includes regular press releases, financial reports, and updates to shareholders.

Compliance with Stock Exchange Rules

If your company is listed on a stock exchange, adhere to the exchange’s rules and requirements.

Engage with Shareholders

Actively engage with your shareholders. Listen to their concerns and feedback. Consider holding annual shareholder meetings to discuss company performance and future plans.

Corporate Social Responsibility (CSR)

Consider adopting or enhancing your company’s CSR initiatives. Publicly traded companies are often scrutinized for their social and environmental practices, so a strong CSR program can enhance your company’s reputation.

Investor Outreach

Continue marketing and outreach efforts to attract new investors and increase liquidity in your stock. Attend investor conferences and roadshows to raise awareness about your company.

Mergers and Acquisitions (M&A)

Evaluate potential M&A opportunities or strategic partnerships that align with your company’s growth strategy. Being a public company may provide additional avenues for financing and expansion.

Risk Management

Develop a comprehensive risk management strategy. This includes identifying, assessing, and mitigating risks associated with the company’s operations, financials, and market conditions.

Legal and Compliance Oversight

Continue to work closely with legal and compliance teams to ensure that your company is in compliance with all applicable laws and regulations. This includes securities laws, antitrust laws, and more.

Liquidity Management

Monitor and manage your company’s stock liquidity to ensure that there is sufficient trading volume. Consider stock buybacks or other initiatives to support stock price stability.

Strategic Planning

Continuously update and refine your company’s strategic plan. Adapt to changing market conditions, customer preferences, and competitive landscapes.

Stakeholder Engagement

Engage with a broader set of stakeholders, including analysts, institutional investors, and the media. Build relationships that enhance your company’s credibility and visibility.

Long-Term Focus

Maintain a long-term perspective. Public companies often face pressure for short-term results, but it’s essential to balance this with a focus on sustainable growth and value creation.

By following these steps after a successful DPO, your company can effectively navigate the challenges and opportunities of being a publicly traded entity and work towards achieving its long-term objectives.

How a DPO Is Formally Announced

After getting consent on their registration statement, the issuing firm announces its offering through a tombstone ad. The issuer then sells the securities to both accredited investors and their non-accredited counterparts.  

How a DPO Is Traded

While an issuing firm can raise funds from an institution via a DPO, a trading exchange channel for its securities won’t be available. Usually, an IPO trades on Nasdaq or NYSE following its offering. However, a DPO doesn’t come with such a trading platform but can trade in over-the-counter markets. DPO securities may encounter illiquidity if unregistered or fail to conform to the Sarbanes-Oxley Act’s conditions.

The Future of Direct Public Offerings

The future of Direct Public Offerings (DPOs) promises a dynamic shift in the fundraising landscape, driven by technological advancements, regulatory adaptations, and evolving investor preferences. As digital platforms become more sophisticated, DPOs are poised to streamline the capital-raising process, making it accessible to a diverse global audience. This inclusive approach, combined with potential regulatory innovations, could propel DPOs into the mainstream as a recognized and viable alternative to traditional IPOs.

Moreover, increased investor education and a focus on sustained engagement could foster a culture of long-term investing, reshaping how companies and investors interact in the capital markets. Ultimately, DPOs are positioned to carve a path toward a more democratized, tech-enabled, and socially impactful future for businesses seeking growth and investors seeking meaningful participation.

Prominent Examples of DPOs

In 1984, Jerry Greenfield and Ben Cohen needed capital to fund their ice cream business. They publicized their ownership stakes via local newspapers for $10.50 each share, where every investor had to purchase a minimum of 12 shares. Their loyal fans in Vermont jumped on the offer, and the company raised more than $700,000 in a year’s time.

On April 3, 2018, Spotify, a popular music streaming service, initiated a DPO. the company chose to underwrite its shares through a direct listing. Spotify’s DPO was unique among similar offerings. The company is listed on the New York Stock Exchange. As an already thriving organization, Spotify bypassed the typical fundraising and publicity efforts that come with an IPO.


A DPO is not as complicated as an IPO. It occurs when a company plans to sell existing securities to the public without the involvement of an intermediary. While DPOs can be appealing, companies should always consult with experts who understand securities laws before initiating one.

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