Drew Field
Direct Public Offerings
Screen Test for a Direct Public Offering
One: The business would excite prospective investors, making them want to share its future.
The day will soon come when millions of Americans will become securities analysts, using computer-based tools for screening and selecting among thousands of companies. We will be creating and managing personalized "mutual funds," through our employer’s retirement plans and our own savings. Our stock selections will be based upon our individual criteria and financial analysis programs. Until then, companies will have to attract us with a story close to our personal interests. We’re not ready for the "dull but good" businesses yet.
Two: There is a history of profitable operations under the Company’s present management.
We have learned that excitement is not enough in a Direct Public Offering. The shoppers’ "impulse purchase" phenomenon seldom happens when the amount involved is at least several hundred dollars. A compelling presentation may work for charitable donations, but people stop and analyze before buying a company’s shares. So . . . what about all the traditional IPOs of companies that barely have revenues and are years away from their first profits? That’s a very different market than the one for DPOs. The selling is done by telephone calls and meetings with money managers for institutional investors, with promotional efforts directed to the individuals who are to buy in the aftermarket. DPOs are sold when the prospectus is read, by cautious individuals spending their own money. With some exceptions, they want proof that management can turn a profit.