Going Public Through an Internet Direct Public Offering: A Sensible Alternative for Small Companies?

Abstract

The Internet has made it possible for a small company to bypass Wall Street and market its stock directly to the public by posting its offering document on the Web. This type of offering has been termed an Internet direct public offering (DPO). The first Internet DPO was launched by a beer microbrewery in 1995. Since then, Internet DPOs have received a lot of attention from the media, and numerous small companies have pursued them. However, data demonstrates that less than 40% of Internet DPOs result in the companies raising any money. The Article examines the advisability of Internet DPOs under existing law as a financing option for small companies in light of this poor success rate. It explores the various federal and state regulatory issues raised by and the advantages and disadvantages associated with going public through an Internet DPO. The Article concludes that, except in limited circumstances, small companies should view Internet DPOs only as a financing option of last resort. In addition to analyzing DPOs under existing law, the Article proposes regulatory changes that would further the public policy objective of facilitating access to capital by small companies without compromising the competing public policy objective of protecting investors from the risks associated with investing in small companies.

Keywords: direct public offering, DPO, internet offering, going public, web offering

JEL Classification: K22