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What is a DPO? How does it differ from an IPO?

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enotes | (Level 1) Valedictorian

Posted March 3, 2014 at 11:17 PM via web

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What is a DPO? How does it differ from an IPO?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted March 4, 2014 at 4:34 PM (Answer #1)

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The acronym “DPO” stands for “direct public offering.”  This is in contrast to the acronym “IPO,” which stands for “initial public offering.”  These are very similar things, but are different in their scope and in the way that they are carried out.

Both a DPO and an IPO involve a company offering to sell its stock (for the first time) to people who are interested.  The company does this because it wants to raise capital.  If the company can sell stock, it can get more money than it can typically raise simply by taking out loans or by using the personal financial holdings of its owners.  Therefore, IPOs and DPOs are generally used by companies that have been in business for a while and are trying to expand.

There are two main differences between a DPO and an IPO.  First, a DPO is more limited than an IPO.  In a DPO, the company is mainly trying to sell shares to people with whom it has a connection.  It will try to sell to people like customers and suppliers.  By contrast, an IPO is offered to the community at large.  This typically allows a company to get more money through an IPO than through a DPO.  Second, a DPO is much simpler and cheaper to do.  In a DPO, the firm simply sells its shares directly.  By contrast, in an IPO, it has to get an investment bank to sell the shares for it.  The investment bank takes a percentage of the money raised as a fee.  There are also many kinds of paperwork required for IPOs that are not necessary if a company does a DPO.

Thus, a DPO and an IPO are both ways to raise money by selling stock, but a DPO is typically cheaper, easier, and on a smaller scale. 

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