Call for more information: 571-EQUIDEFI (571-378-4333)


EquiDeFi® Learning Center

Direct Public Offering

Direct Public Offering

One of the methods of going public is directly through a public offering.  In today’s financial environment, many Issuers are choosing to self-underwrite their public offerings, commonly referred to as a Direct Public Offering (DPO).  An IPO, on the other hand, is a public offering underwritten by a broker-dealer (underwriter).   As a very first step, an Issuer and their counsel will need to complete a legal audit and any necessary corporate cleanup to prepare the company for a going public transaction.   This step includes, but is not limited to, a review of all articles and amendments, the current capitalization and share structure and all outstanding securities; a review of all convertible instruments including options, warrants and debt; and the completion of any necessary amendments or changes to the current structure and instruments.  All past issuances will need to be reviewed to ensure prior compliance with securities laws.  Moreover, all existing contracts and obligations will need to be reviewed including employment agreements, internal structure agreements, and all third-party agreements.

Once the due diligence and corporate cleanup are complete, the Issuer is ready to move forward with an offering.  Companies desiring to offer and sell securities to the public with the intention of creating a public market or going public must file with the SEC and provide prospective investors with a registration statement containing all material information concerning the company and the securities offered.  Such registration statement is generally on Form S-1.  For a detailed discussion of the S-1 contents, please see my white paper here.  The average time to complete, file and clear comments on an S-1 registration statement is 90-120 days.  Upon clearing comments, the S-1 will be declared effective by the SEC.

Following the effectiveness of the S-1, the Issuer is free to sell securities to the public.  The method of completing a transaction is generally the same as in a private offering.   (i) the Issuer delivers a copy of the effective S-1 to a potential investor, which delivery can be accomplished via a link to the effective registration statement on the SEC EDGAR website together with a subscription agreement; (ii) the investor completes the subscription agreement and returns it to the Issuer with the funds to purchase the securities; and (iii) the Issuer orders the shares from the transfer agent to be delivered directly to the investor.  If the Issuer arranges in advances, shares can be delivered to the investors via electronic transfer or DWAC directly to the investors brokerage account.

Once the Issuer has completed the sale process under the S-1 – either because all registered shares have been sold, the time of effectiveness of the S-1 has elapsed, or the Issuer decides to close out the offering – a market maker files a 15c2-11 application on behalf of the Issuer to obtain a trading symbol and begin trading either on the over-the-counter market (such as OTCQB).  The market maker will also assist the Issuer in applying for DTC eligibility.

A DPO can also be completed by completing a private offering prior to the filing of the S-1 registration statement and then filing the S-1 registration statement to register those shares for resale.  In such case, the steps remain primarily the same except that the sales by the company are completing prior to the S-1 and a 15c2-11 can be filed immediately following effectiveness of the S-1 registration statement.

Why DPO?

As opposed to a reverse merger, a company completing a DPO does not have to worry about potential carry-forward liability issues from the public shell.

A company completing a DPO does not have to wait 12 months to apply to the NASDAQ, NYSE MKT or other exchange and if qualified, may go public directly onto an exchange.

A DPO is a money-raising transaction (either pre S-1 in a private offering or as part of the S-1 process).   A reverse merger does not raise money for the going public entity unless a separate money-raising transaction is concurrently completed.

As long as the company completing the DPO has more than nominal operations (i.e., it is not a very early-stage start-up with little more than a business plan), it will not be considered a shell company and will not be subject to the various rules affecting entities that are or ever have been a shell company.  To the contrary, many public entities completing a reverse merger are or were shells.

A DPO is less expensive than a reverse merger.  The total cost of a DPO is approximately and generally $100,000-$150,000 all in.  The cost of a reverse merger includes the price of the public vehicle, which can range from $250,000-$500,000.  Accordingly, the total cost of a reverse merger is approximately and generally $350,000-$650,000 all in.  Deals can be made where the cost of the public shell is paid in equity in the post-reverse merger entity instead of or in addition to cash, but either way, the public vehicle is being paid for.  NOTE: These are approximate costs.  Many factors can change the cost of the transactions.

Related Articles

Get News & Updates

In Your Inbox

Sign up to our newsletter to get updates on our latest content and services.


Skip to content