The Direct Public Offering

by | March 10, 2009

Direct public offerings are gaining popularity as financing vehicles for entrepreneurs and small business owners. The Small Corporate Offering Registration (SCOR) was developed by the Securities & Exchange Commission (SEC) in 1992 as a way to help small businesses gain easier access to equity capital while satisfying SEC requirements. The goal of SCOR is to create a filing process simple enough for an entrepreneur, corporate attorney and accountant, yet thorough enough for full disclosure.

SCOR offers small businesses a low-cost, minimal-hassle alternative to filing a traditional initial public offering (IPO) or private placement (PPO). SCOR caters to entrepreneurs, promoters, attorneys and accountants who are not specialists in the securities industry. Under this program, businesses can raise up to $1 million in equity capital annually by selling stock, options, warrants, rights, notes or other debt securities. SCORs provide many advantages over traditional IPOs and PPOs for entrepreneurs: they allow companies to gain access to greater amounts of capital, alter the share price, control costs, select shareholders, create a direct relationship with the shareholders and customize their financing needs. To become a part of the SCOR program, companies are required to file two forms, the SCOR Form U-7 and Form D. Form U-7 was developed specifically for SCOR and serves as the primary registration document. The Form U-7 must be filed with each state in which you plan to sell securities, and you must file the Form D with the SEC.

Filing a SCOR is far less expensive than a traditional IPO. Initial public offerings can cost $350,000, if not more, in registration, legal and consultant costs. Because they eliminate the need for expensive advisors and cut down on the number of hours spent preparing documents, SCORs can often be filed for under $10,000. Filing a SCOR is also significantly less restrictive than filing for a traditional IPO. Stock sold under a SCOR can be traded in the secondary market. This makes the investment more liquid and less risky, and helps to attract investors.

While the SCOR process is considered simple compared to the other public offering options, there is relatively little instructional information available. Denver-based DataMerge Inc. produces a manual/software program titled "Self-directed IPO, Raising Capital with SCOR," divided into the SCOR Registration Guide and the SCOR Marketing Guide, that walks companies through the filing process with instructions, tips and sample U-7 forms. This provides background on the SCOR process and its evolution, step-by-step instructions for filling out Form U-7, sales/marketing techniques, samples of successfully completed registrations and timetables of events. For more information about the SCOR program and DataMerge's SCOR manual, call (800) 580-1188 or visit www.datamerge.com/scor.html.

Things to think about

  • Would your business benefit from a direct public offering?
  • How would you market your DPO to potential investors?

Filed Under: Job Search


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