Drew Field
Direct Public Offerings
Screen Test for a Direct Public Offering
Three: The Company and management meet standards of honesty, social responsibility and competency.
The closer we feel to where our money is actually put to use, the more we need to feel comfortable with it. "It's 3:00 a.m. Do you know where your money is?" was the advertising theme of one of the first socially responsible mutual funds. When people invest directly in shareownership of a company, after making their own decision and using their own money, they feel a sense of identity with that company. Polls consistently show that an overwhelming percentage of consumers prefer products from companies that aren't causing harm. That carries over to buying shares as well.
Four: The business can be understood by people who may have no experience investing in shares.
Your business doesn't need to be understandable to all people--just to those in the affinity groups to which you will be marketing your shares. But those affinity groups need to be large enough to buy your entire offering. (We explain a little later how to calculate whether your affinity groups are sufficient for your DPO to work.) Shares are sold in a DPO when someone reads the prospectus. If they are struggling to grasp the concept, or lost in confusing details, they will lose interest. One exercise is to try describing your business in ten words or so. Another is to try telling your whole story--what your business is, what you're going to do with the public's money and the particular risks of investing in your shares--in the equivalent of a one-page memorandum.