A DPO is similar to an initial public offering (IPO) in that securities, such as stock or debt, are sold to investors.
Following compliance with federal and state securities laws, a company can sell its shares directly to anyone, even non-accredited investors, including customers, employees, suppliers, distributors, family, friends, and others.
Direct public offerings are often viewed as a type of investment crowdfunding; but unlike the offerings made under crowdfunding exemptions (Title III of the federal JOBS Act or similar state laws), DPOs are typically registered at the state level and undergo some degree of regulatory scrutiny.
The advantages of a direct public offering include: broader access to investment capital, the ability to raise capital from the company's own community (including non-wealthy investors), the ability to utilize stock to complete acquisitions and stock options to attract and retain employees, enhanced credibility and providing early investors with liquidity.
The disadvantages of a direct public offering include: the company must raise its own capital without the assistance of professional financiers, the process has significant cost which may significantly reduce the effective capital raised, like any financing, it takes management time and attention from business operations, and there may be ongoing financial and legal reporting requirements.