3c hapter - Index of

196 Locavesting
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A DPO may serve as an initial fund raising event before a company
goes on to a conventional IPO. Companies such as Ben & Jerry’s
followed their DPOs with successful IPOs, resulting in rich returns
for early investors.
DPOs give individuals a chance to invest in companies with whom
they have an affi nity or shared values, or whose products they like
and admire. As customers, they contribute to the success of their
investment.
Individual investors often have more access to management of
DPO companies than they would to management of large publicly
traded companies.
Companies issuing shares directly are required to provide a comprehensive
prospectus, so relevant information on the business, its
fi nances, and risk factors is available to potential investors.
Cons:
• Liquidity is an issue. There is often not a way to trade shares on
a secondary market, and when there is, volume may be scant. And
not all companies will go on to an IPO or sale of the company.
• Any business carries risk, and with DPOs there is no Wall Street
underwriter conducting due diligence. Lacking a market mechanism,
companies issuing shares directly may arbitrarily set stock
price.
• There is not likely to be ongoing coverage of the stock by analysts.
The Bottom Line: If you love the company, this is your chance to
own it.
Investor Checklist for DPOs:
• Before you buy shares in a DPO, consider the following:
• Are you familiar with the company’s products or services?
• What is its fi nancial condition? Does it have outstanding debt or
legal issues? Ask to see fi nancials.
• Are revenues suffi cient? Does the company have a good revenue
model?
• What will the proceeds of the offering be used for?
• How are the securities priced? Do they imply a fair value for the
company?
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Do you have confi dence in the management team?