After regulators approve the SCOR, the company has 12 months to raise the money. Following a successful offering, a company can set up an order-matching service with a local brokerage that will act as a stock exchange or keep a list in house to match buyers and sellers. If a firm does not raise the minimum it has set within the offering period, investors must get their money back, with interest. By handling all the paperwork, marketing the shares and cutting out most registration, brokerage and legal fees a DPO can be done at a cost of about 6 percent of the funds raised, against 13 percent for a traditional underwriting. Moreover, DPO investors tend to be loyal, say experts, and do not demand immediate profits.
Companies hawk shares at the grass roots - and in the aisles.
Shareholders in Blue Fish Clothing learned about the offering from sales tags hanging from its apparel in boutiques at Neiman Marcus and other tony retail outlets. But we only wanted to offer shares to people who understood what our company is all about. Moreover, a one-product company, such as a brewer, is easier to market to investors than a multiline business might be. Financial statements can be uncluttered, and the business plan can be communicated in a few short sentences. While launching a DPO is relatively simple, success is more elusive.