Working
Woman
BizBuzz
June 1996
GOING PUBLIC ON MAIN STREET, NOT
WALL STREET
When multimillion dollar companies want to go public, they announce their stock
offerings in the Wall Street Journal. When Annie's Homegrown wanted to go
public, it stuffed coupons in boxes of its macaroni and cheese.
The coupons are Annie's primary way of telling the world about its direct
public offering (DPO), an equity-financing tool that's quickly catching on with small
businesses. If all goes as planned, by the time the yearlong offering ends in August, the
Hampton, Conn.-based firm, with nearly $4 million in annual revenues, will have raised
$3.6 million. In the past three years, 560 small businesses have gone public without the
help of an investment bank, up from 189 between 1989 and 1992, according to the North
American Securities Administrators Association. There are plenty of obstacles facing small
businesses that want to go public in the traditional way. For starters, landing an
investment banker willing to underwrite a stock offering under $10 million is nearly
impossible. And the cost of most IPOs is about 13% of what a company expects to
raise. By contrast, Annie's offering should cost the firm just 7%, or $250,000.
But there are drawbacks to DPOs as well, especially for investors. For one thing, DPO
shares are often highly illiquid. Until they are listed on an exchange, transactions
usually have to be arranged by the company or by a company-appointed broker who tracks
down and matches buyers and sellers. Companies that don't raise the minimum amount
specified in the prospectus must return investors' money. (Through 1995, 30% of firms that
filed offerings met their minimum goals, up from 20% in 1994, reports Tom Stewart-Gordon,
publisher of the Dallas-based SCOR Report, a newsletter that tracks DPOs.)
Still, many companies love the patient, loyal shareholders that DPOs attract, says Drew
Field, a securities lawyer and author of Take Your Company Public: The
Entrepreneur's Guide to Alternative Capital Sources. That kind of support is
a godsend for young companies feeling growing pains," he says.
Besides Annie's, small businesses that have taken a fancy to
grassroots public offerings include Frenchtown, NJ.-based Blue
Fish Clothing, Hopland, Calif's Mendocino Brewing Company,
Spring Street Brewing in New York City, which is selling its shares via the Internet, and Real Goods Trading, an environmental-products cataloger in
Ukiah, Calif.
And some companies graduate from DPOs to the big leagues. Mendocino Brewing,
which last year raised $3.6 million through ads placed in its six-packs, is now listed on
the Pacific Stock Exchange. Hey, how about some macaroni and cheese to go with that beer?
By Kerry Harmon