3c hapter - Index of
3c hapter - Index of
3c hapter - Index of
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182 Locavesting<br />
IPOs, however, come at a cost. For one, they are expensive.<br />
Costs for legal, listing, and accounting fees can easily exceed $1<br />
million, so IPOs make sense only for companies seeking to raise<br />
large sums, usually $25 million or more. Once public, there is<br />
the ongoing expense <strong>of</strong> managing investors and issuing quarterly<br />
audited fi nancial reports. Suddenly, the company is thrust into<br />
the harsh glare <strong>of</strong> the public spotlight, where the demands <strong>of</strong> Wall<br />
Street can make it diffi cult, if not impossible, to make strategic<br />
investments and management decisions that lower earnings in the<br />
short term.<br />
More broadly, the public markets have not been welcoming<br />
to small companies lately. The minimum thresholds to list on the<br />
NYSE or even the traditionally smaller cap NASDAQ rule out companies<br />
without a signifi cant market capitalization, 1 but a bigger<br />
obstacle is that investment banks these days don’t want to waste<br />
time on any but the biggest and most lucrative IPOs. The median<br />
IPO size 20 years ago was $10 million; by 2009, it was $140 million.<br />
In addition, the volatility and short- term demands <strong>of</strong> the public<br />
markets have scared <strong>of</strong>f many promising IPO candidates—one reason<br />
the number <strong>of</strong> IPOs has declined precipitously in recent years.<br />
But there is another twist that is gaining favor among smaller<br />
companies: the direct public <strong>of</strong>fering, or DPO. Think <strong>of</strong> it as an<br />
IPO for the do- it- yourself (DIY) crowd.<br />
Direct Public Offering<br />
Like the more familiar initial public <strong>of</strong>fering, or IPO, a direct public<br />
<strong>of</strong>fering (DPO) raises capital by selling shares to the public. The<br />
difference is that the company raising the money handles the marketing<br />
<strong>of</strong> the <strong>of</strong>fering itself, rather than going through a Wall Street<br />
underwriter. Eliminating the middleman reduces costs, making the<br />
public markets more accessible to smaller companies for whom<br />
a conventional IPO may be out <strong>of</strong> reach. For investors, DPOs allow<br />
them to get in on early stage investments typically reserved for angels<br />
and venture capitalists.