How to Go Public through a Direct Public Offering (DPO) onto NASDAQ/NYSE

The Direct Public Offering (DPO) was restructured by the SEC in 2015. Any company that conducts a DPO does not become publicly traded but can subsequently register to sell on a public market (NASDAQ, NYSE) or over the counter (OTC). NextSeed, a Texas-based financial technology company, raised $5.5 million in its DPO in 2016 under Regulation A+ of the JOBS Act and got listed on the OTC Markets in May 2021. Since then, the company has shown impressive growth, recording revenue of $5.5 million in 2018 and investment returns ranging from 8% to 15%.

Back in 2019, an anticipated tech company called Slack decided to debut its shares to the public through a direct listing on the New York Stock Exchange. Slack is the second major tech company behind Spotify to do a direct public offering (DPO). Currently, Slack has 10 million active users with a considerable amount of paying subscribers and has a value of $7.1 billion as of August 2019. Some other examples of companies doing well on OTC after a successful DPO include Tonix Pharmaceuticals Holding Corp. (TNXP), Med-X Inc. (MEDX), and LM Funding America, Inc. (LMFA)

Usually, when a company goes public, they typically complete an IPO where one or more investment banks serve to underwrite the issuing stock. When the company goes public with an IPO, it can make it hard for all investors to gain access to the IPO due to the underwriters distributing shares among select brokerages who then impose restrictions on participating in the IPO.

Despite the fact that DPOs are rarely utilized when a company is trying to go public, there are still several benefits for both large companies and small companies to employ this process. Although most companies don’t prefer to use the direct listing or DPO process, there are preeminent examples of companies going public through direct listings, including Spotify, Ben & Jerry’s, and Annie’s Homegrown. Nevertheless, because it is a scarce process, there are several important considerations

Benefits of a Direct Listing (DPO)

  1. Companies have more control over the entire process when using a DPO, and underwriting is not necessary. A DPO is not subject to market conditions and is directly handled by the company. There is no need for a company to use brokerage services and purchase or use expensive outlets. Newspapers, magazines, social media platforms, and public meetings are all alternatives that can be used during this process. Affordable options are called up and some risks are bypassed.
  2. Investors can have an opportunity to get in on exciting investment opportunities and can participate in high-risk/reward venture-stage funding. DPOs may serve as a formal listing event (using a resale registration statement) before a company raises money through traditional underwriters in later secondary offerings. For example, Ben & Jerry’s followed its DPO with successfully underwritten public offerings which resulted in high returns for early investors.
  3. Individuals get a chance to invest in companies with whom they have shared values, or whose products they like and appreciate. As an investor, you are supporting the success of your investment. Going public through a DPO is much faster than a traditional IPO, and the listed companies do not have to wait for an offering to be closed before trading. With that, shares can be sold immediately upon registration effectiveness as there is no usual waiting period. Direct listings also present less of a risk of a run-up in price on the first day.
  4. The process of a DPO is more cost-efficient than an IPO, as there isn’t a need to pay investment bankers a commission to help sell the IPO.
  5. There are innovative tools to help with the sale of DPO offerings, allowing companies to raise money through an ongoing raise under Regulation A+ up to $75 million through a “do it yourself” crowdfunding campaign. Through the Cloudraise® Platform by Equity Track, it is easier than ever to allow issuers to manage their equity crowdfunding campaign on their own website. This allows issuers to raise money from their investors directly and gain access to capital by doing a direct public offering.
  6. DPO on OTC is a great combination as global companies can raise funds from their US-based community, including non-accredited investors.
  7. Since the rules and regulations are not stringent, companies can choose between OTCQX, OTCQB, or OTCPink based on the quality and quantity of information they want to disclose.
  8. Companies can save costs through DPO (no intermediaries) while benefiting from the efficiency of  OTC Link® ATS ( Alternative Trading System).
  9. OTC Trading is efficient and settles trading volume in the issuer’s home market.
  10. Companies are directly involved in the listing process and have the flexibility to decide the offering price; the minimum number of investments; the settlement date; the offering period; and more.

For a small company to list a DPO on the OTC Markets, it will need to complete the following steps:

  1. Deciding on the type of offering: Companies considering a capital raise should consider a Series A offering through a guided Reg A+ or Reg CF offering hosted by an equity crowdfunding portal or a Reg D private offering from family and friends or private equity firms.
  2. Selecting Vendors: Companies going public will require the professional opinion of experts, including: 
    1. Securities Attorney
    2. Auditor
    3. Transfer Agent
    4. Investor Relations firms
    5. EDGAR filing agent 
  3. Audit and SEC filings preparation: Companies can decide to hire either a PCAOB or non-PCAOB auditor for auditing financial statements depending on the kind of offering they are going for. In conjunction with the audit, the securities attorney will draft legal disclosures, which are then sent to the financial printer and EDGAR filing agent for converting documents into compliant formats. Colonial Filings can EDGARize and submit your filings to the SEC for you. Click here to get started.
  4. File FINRA 15c2-11 application and apply for DTC eligibility: Filing Form 211 through OTC markets to FINRA will allow your company to list on the OTC and begin trading. DTC eligibility enables the broker to deposit the securities into the brokerage account and start making a market in the stock.  
  5. Maintain and manage shareholder records: An SEC-registered transfer agent manages the database/ledger for your shareholders and provides cap table management and shareholder support services. Colonial Stock Transfer is SEC registered, leading stock transfer agency that specializes in OTC securities. Click here to learn more.

Concerns of a Direct Public Offering

Because of the lack of use by companies, there is not a lot of evidence or experience that shows that this process is the most effective in taking a company public. The lack of knowledge of this process presents challenges such as not knowing what a company’s shares will be worth and how it could create issues in shares being over or undersold. However, with an IPO, underwriters are able to protect the stock price and shares.

A DPO not backed by an underwriter lacks a safety net that attracts investors and guarantees capital raising. Mutual funds and pension funds are less likely to participate in a DPO, limiting the pool of potential investors.

DPOs have limited liquidity, restricting investors from selling their shares in the secondary market. Since a direct listing onto NASDAQ or NYSE skips the underwriting process, it means issuers have more risk if the offering does not go well. In order to balance this risk, issuers would have to obtain a higher share price. Stocks sold through a DPO go to a limited number of investors who tend to have a long-term orientation, which oftentimes has less pressure on the company’s management to deliver short-term results.  Wall Street underwriters will not conduct any due diligence on the company, and the company issuing shares may set an arbitrary price.


Slack, the cloud-based tool that helps communication and collaboration amongst groups predominantly in the workplace decided to go public through a DPO because they didn’t need to raise funds, as the company has been financing its growth from its current operations. This path allows Slack to allow its investors and insiders to cash out while not actually raising any money for the company. Like Slack and Spotify, Airbnb is considering directly listing its stock on an exchange. Large tech companies using direct listing are still in the experimental stage, but if DPOs continue to be successful then we will see tremendous growth in using this method.

Colonial Stock Transfer can help with Transfer Agent Services for your Direct Public Offering. Contact us to learn more.

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