Drew Field
Direct Public Offerings
Case Studies

Check out Real Goods third DPO!

Real Goods Trading Corporation

John Schaeffer started this catalog direct marketing business with a $3,000 investment in 1986 and still owned it all five years later when we started its first DPO. Half of its $6 million annual sales at that time were in alternative energy generation (photovoltaic, wind and hydro) systems and energy conservation. The rest were in a broad range of environmental, "green" products.

A brief description of Real Goods in the Wall Street Journal's Enterprise column suggested that it might fit the elements in the "Screen Test for a Direct Public Offering." The first edition of this book was about to be published and the next step was to carry what had been developed in the savings bank DPOs over to other industries. John was willing to test the concept and to use the new SCOR filing process for offerings of not more than $1 million.

Real Goods selected a target market of customers who had purchased more than a certain amount, or more than three times, in the most recent 15 months. These were sorted by residence and 13 states were picked for the offering, based upon the number of qualified customers and the cost of compliance with state securities laws. A "tombstone" announcement went to 15,000 customers in October 1991. Within three months, there had been 6,200 requests for the offering documents and sales to 674 new shareowners. Another $300,000 had to be returned to 175 customers who subscribed after the maximum had been reached.

A second DPO was completed in 1993, using the SEC's Regulation A filing and simply updating the offering document from the earlier SCOR offering. This time, the $3,600,000 maximum amount was sold and several hundred thousand dollars had to be returned as coming in too late. After the two offerings, John Schaeffer still owned 75% of the Company. Shares began trading on the Pacific Stock Exchange in 1994 and over-the-counter trading is reported on the NASDAQ Small Cap Market. In 1996, Real Goods became the first company to begin an SEC-cleared bulletin board for "off-the-grid" buying and selling its shares without a broker.

Three securities brokerage firms were enlisted on a "best efforts" agency basis for the second offering. However, their total sales were less than 10% of the offering. We also experimented with ways to identify and communicate with affinity groups beyond Real Goods customers. Most of those were not cost-effective.

Real Goods had learned after its first offering that customers who had become shareowners purchased twice the dollar amount of Real Goods products than non-shareowner customers. The extra contribution to gross profit was well worth the cost of servicing shareowners with reports and certificates. As a result, the minimum required purchase was reduced from 100 shares to 15 shares in the second offering. The states in which we registered the offering was increased to 44. Nearly 5,000 Real Goods customers had become shareowners in the two DPOs, with an average investment of about $900. Total costs of the two offerings, including marketing expenses, had been about ten percent of the funds raised.