Tips to Direct Public Offerings

Ever since the Jumpstart Our Business Startups Act (JOBS Act) was signed into law in 2012, there’s been a great deal of buzz about Title III, the final provision of the law to be implemented. This so-called “equity crowdfunding” measure would open new pathways for small businesses to raise capital from nonaccredited investors. On Oct. 30, the U.S. Securities and Exchange Commission (SEC) approved the final rules for Title III, signaling that the long wait for equity crowdfunding would soon be over.

But the public’s anticipation of Title III belies the reality that it is already possible to raise capital from nonaccredited investors. By using certain federal securities exemptions — referred to generally as direct public offerings (DPOs) — businesses (and, in some cases, nonprofits and cooperatives) can employ a number of cost-effective strategies that allow them to directly appeal to potential investors, all the while tailoring the terms of the offering to their specific desires.

A direct public offering is the process of using a federal securities exemption to directly sell equity to virtually anyone. These offerings are approved by state regulators, so the rules vary a bit depending on each state’s relevant statutes.

“It’s a very flexible strategy,” Brian Beckon, vice president of Cutting Edge Capital, told Business News Daily. “[The terms of the offering] are really up to the entrepreneur. This is what’s great about a DPO; you don’t have a negotiated investment. What the regulators approve is the offering, which is non-negotiable and exactly what the entrepreneur wants.”

Investors can choose to buy in or opt out based on those established terms, but the issuer remains in the driver’s seat every step of the way. Beckon’s firm advises clients on the steps involved in undergoing a DPO, from reviewing financials and preparing documentation to attaining approval from regulators. Once regulators in the state where the offering will take place grant a permit, all that’s left to do is pitch to potential investors, with the aim of accumulating capital.