FAQ's for Direct Offerings

Frequently Asked Questions

1. What is a Direct Offering?

2. How did Direct Offerings come into existence?

3. Why use a Direct Offering now?

4. How much money can my company raise with a Direct Offering?

5. What are the state and federal government considerations?

6. Why does a company go public?

7. What are the benefits of going public without an underwritten offering?

8. What companies have gone public via a Direct Offering?

9. How do I prepare for a Direct Offering filing?

10. Why would I want to use iValueRich.com?

11. I have a specific question, whom should I contact?

1. What is a DPO?
   
   In a direct offering (DO), a company raises capital by marketing its shares directly to its own affinity groups--such as its customers, employees, suppliers, distributors and friends in the community. DPOs are an alternative to underwritten public offerings by securities broker-dealer firms, in which a company's shares are sold to the broker's customers and prospects.
   
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2. How did Direct Offerings come into existence?
   
   Small businesses have found it difficult to access the public financial markets until fairly recently. Why? Initial Public Offerings (IPO) require a rigorous and extensive registration and compliance process. The investment banker(s) underwriting an IPO typically charge around 5 to 10% of the total amount raised. Naturally, investment banks want to work with offerings that are valued in the millions, if not billions, of dollars. This prohibitive cost and fee structure, along with the increased manpower needed to conduct an IPO ,has kept many small businesses away from the public markets for decades.
   
   The process of simplifying public stock offerings for small businesses began after Congress passed the Small Business Investment Incentive Act of 1980. Unfortunately, government agency response to compy with this directive at both the federal and state levels has not been forthcoming. Luckily, the Internet changed these circumstances for the better. Small companies were suddenly able to bypass Wall Street by using the Web to post their offering and market their companies direct to investors. These offerings became known as DPOs (Direct Public Offerings). The Securities Exchange Commission (SEC) also were more lenient in small business stock offerings, leaving most of the regulations to each state. DPOs are usually limited to the state in which the corporation is based, and only companies with strong affinity groups (potential customers and investors) were able to successfully complete their offerings.
   
   The first DPO was launched by a beer microbrewery in 1995. As DPOs gained market acceptance, structures of DPOs have changed, allowing new state and SEC regulations, which have further increased their accessiblity to small businesses. DPOs are used by a wide range of companies, from innovative start-ups to well-established, private companies. Recent DPOs include: Google (Nasdaq: GOOG); Costco Wholesale Corp. (COST); and NACTEL Energy (OTCBB: NCEL).
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3. Why use a Direct Offering now?
   
   Over the last 15 years, Fortune 500 companies have reduced their workforce from 16 million to five million, while small businesses have added 20 million new jobs. Small companies have accomplished this all with less than 1% of publicly traded equity capital. Just imagine what an infusion of capital could do. Small businesses could reach a much higher growth potential. Fast forward to 2008, and the U.S. is experiencing the worst economic conditions since the Great Depression. Small businesses, who have been long ignored in the public arena, are now able to use DPOs to raise money to help fuel their growth. Economists are now pointing to small businesses as the ones who are likely to propel our country forward over the next 10 years. With a tightening credit market and a collapse in the large financial markets, DPOs are the best scenario to achieve effectiveness and maximize returns for the early investor.
   
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4. How much money can my company raise with a Direct Offering?
   
   Most companies select to execute SCOR (Reg D) and Regulation A financings. The maximum limit allowed when using various DPO forms are as follows:.
   

   		SCOR (Reg D) -- $1 Million
   		Regulation A -- $5 Million

   		SB1 -- $10 Million
   		SB2 -- $25 Million

   
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5. What are some of the state and federal government considerations?
   

   As the historical federal regulator of public offering activities, the Securites Exchange Commision (SEC) allows individual states to regulate securities offerings under $1 million. State regulatory agencies enacted a variety of rules and exemptions to help small businesses raise capital on their own. The program instituted by Washington State was so successful that in 1989, the North American Securities Administrators Association (NASAA) adopted a version that all states could use. This model, the Small Corporate Offering Registration (SCOR) has been adopted by all but two states as of Spring 1998.

   In 1992, the SEC 's Small Business Initiatives simplified the reporting rules and reduced the costs of compliance with federal securities laws. The following changes took place: Rule 504b(1) -- part of SCOR's Regulation D -- was amended. The revised regulation removed restrictions on general solicitation and on the resale of securities sold in these offerings. Under the SCOR program, an issuer can now conduct an interstate offering of non-restricted securities. The ceiling for public offerings under Regulation A was raised from $1.5 million to $5 million. It also provided for an alternative disclosure document. Regulation S-B, a new integrated registration and reporting system, was developed by the SEC. Under this system Form SB-1 permits registration of up to $10 million, and Form SB-2 permits unlimited registration

   With respect to stock trading, In 1995 the Pacific Stock Exchange received approval from the SEC to list SCOR and Reg. A securities. This was designed to create a market for SCOR and Reg. A securities and provided liquidity to shareholders. At the same time, the Internet emerged as an attractive tool to market these offerings. The Internet enables companies to build and communicate with affinity groups faster and more efficiently, thus increasing the potential demand for their offerings

   Within the United States, there are 50 different state regulations controlling offerings, as well as different rules in the District of Columbia, plus federal and possibly other requirements. Traditionally, an offer or sale couldn't be made in a jurisdiction where it wasn't qualified or exempt. Since the Internet reaches everywhere, this becomes a problem. Fortunately, the state regulatory bodies are generally allowing the offering to include disclaimer language such as "This is not an offer in any jurisdiction where it has not been qualified. No sale may be made in any state unless pursuant to qualifications or an exemption from qualification." Thus, an offer within the state of California may be placed on the Internet without instantly breaking the law in New York.

   The Internet also allowed the prospectus, which must be sent to every prospective investor, to be distributed as an electronic version so long as it is the same as the print version. A prospectus using an HTML or Adobe Acrobat format saves a company an enormous amounts of  money reserved for printing and mailing costs.
   
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6. Why does a company go public?
   
   Public companies offer many distinct advantages, including the following:
   

   		Mergers and Acquisitions: Public stock of a company can be used for businesses to grow through acquisitions.
   		Higher Valuations: Public Companies are typically valued more than private companies.
   		Benchmark Trading Price: The trading price of a public company's stock serves as a benchmark for the offer price of other securities.
   		Capital Formation: Raising capital later is typically easier because of the extra liquidity for the investors.

   		Incentives: Stock options and stock incentives can be very helpful in attracting employees.
   		Reduced Business Requirements: While an underwritten initial public offering requires significant earnings, the lack of any earnings does not keep a private company from going public.
   		Less Dilution: There is less dilution of ownership control compared to an IPO.
   		Reduced Underwriter Requirements: No underwriter is needed.

   		S-8: Form S-8 stock can be issued to employees and consultants by a public company.
   		Liquidity: A public company provides liquidity for management, minority shareholders, and investors.
   		Reputation: Added prestige and visibility with customers, suppliers, as well as the financial community
   		Increased Wealth to Fuel Growth Strategies

   		Estate Planning Tool
   		Raise Capital: By converting to a corporate status, a company can always dip back into the market and offer additional shares through a secondary offering. It is usually easier to raise capital as a public company because then stock brokerage firms and their clients may be able to buy your stock.

   
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7. What are the benefits of going public without an underwritten offering?
   
   In a Direct Offering, an underwriter is not needed, nor is an investment banker. While the money raised is made directly by investors and the amount is substantially lower than a traditional IPO, many small to mid-sized firms select a Direct Offering for its accessibility, timeliness and distinct advantages, including:
   

   		Active market making, aided by a small amount of available public stock, can produce a strong and stable stock trading price for the public company’s stock.
   		The registration statement can also include securities of the insiders, corporate officers and other shareholders.
   		If the registration includes warrants, the public company can expect to receive proceeds from the exercise of those warrants when the trading price of the public company stock exceeds the exercise (strike) price of the warrants. This is another way for a public company to raise capital.
   		Typically only a small percentage of the private company’s shares are registered. This preserves the corporate ownership of the existing shareholders for raising capital is in the future.

   		Costs and related fees can be reduced by approximately 80% compared to an IPO
   		The Company prepares the market for a later public offering, which typically occurs at a stock price greater than could have been done initially.
   		Preferred stock can be issued for various purposes by a public company.
   		Management and initial shareholders of the private company can have their stock in the registration statement. This can allow them to then sell their securities in the public market.

   		Foreign companies may not want to become a U.S. company. An overseas company can have their securities traded in the U.S. on a U.S. stock exchange without requiring them to become a US corporation or subsidiary.
   		The market value of a public company is usually greater than a private company in the same industry.
   		It is usually much easier to raise capital for a public company because the stock has a market value and is tradable.

   
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8. What companies have gone public via a DPO?
   
   Google (Nasdaq: GOOG); Costco Wholesale Corp. (COST); and NACTEL Energy (OTCBB: NCEL) are among the many companies small and large who have turned to DPOs to achieve their financing goals. ValueRich, Inc. had underwriters when it became a public company in 2007 but through the contacts and connections developed with in the ValueRich affinty group, ValueRich executed its own DPO in August 2007, raising $5.6 Million and became a fully reporting company listed on the American Stock Exchange (now known as NYSE Amex Exchange) under symbol "IVA."
   
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9. How do I prepare for a Direct Offering filing?
   
   

   		Prospectus. The official offering document called the Prospectus must be prepared. A company's prospectus must be available to all prospective investors and is included in any registration statement filed with the SEC. The document provides full disclosure of the company’s history, management background, products and services, business strategy, financial statements and projections, use of proceeds, investment risks and other detailed information.
   		Reporting and Disclosure. Care needs to be taken to include all of the reporting and disclosure requirements with the offering. Failure to follow proper procedures may put the offering in violation of state or federal law and may invalidate the offering.
   		States’ Regulatory Issues. Your DPO must be registered in each state in which you wish to sell stock. While most states accept a form U-7 for the filing, many states have differing and/or additional regulations and filing fee structures, e.g., the number of shareholders who may participate and the amounts they may invest, etc.
   		Subscription Agent. You may need a subscription agent to certify that you are complying with varying state restrictions. While this task is performed internally, care needs to be taken to avoid penalties which may be assessed for failure to comply or keep adequate records. Penalties could include the return of a potential investor's check.

   		Accounting. Depending on the type of offering, annual, audited financial statements may be required. A licensed CPA must perform this task.
   		Attorney. Familiarity with SEC and State regulations about public offering disclosure and reporting is not common to all attorneys. Be sure to retain an attorney who can provide this service. iValueRich will help facilitate the legal process and ensure you meet all compliance issues.
   		Record Keeping. In addition to the prospectus, there are certain document requirements for the offering. For example, the printing or electronic delivery of documents, inventory and delivery of stock certificates, safeguarding unissued certificates, etc. This is typically outsourced to a transfer agent that adminsters all shareholder records.

   
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10. Why would I want to use the ValueRich platform for my Direct Offering?
    
    

    ValueRich, Inc. recognizes that small companies often carry significantly greater upside potential compared to companies that warrant a $1 Billion market capitalization. iValueRich.com focuses on companies seeking to raise $250,000 up to $2 Million and a listing on the OTC Bulletin Board, Nasdaq or other national exchange. While ValueRIch, Inc. is not a FINRA broker-dealer, our principals are former broker-dealers, who have helped many small-cap companies raise money, attract shareholdes and go public. ValueRich, Inc. executed its own DPO in August 2007, raising $5.6 Million dollars and a listing on the American Stock Exchange (now known as NYSE Alternext USA Exchange) under symbol "IVA."  The principals of ValueRich, Inc. have executed dozens of deals, including IPOs, PIPEs and other financings. Their experience can advise you every step of the way from preparing your DPO, adhering to all federal and state regulatory issues, creating a powerful online marketing presence and expanding your shareholder base/capital raise. Companies can save up to 80% of the costs and related fees of a traditional initial public offering, simply by using the ValueRich platform. ValueRich members share our desire to help finance the future growth of promising and innovative, development-stage and emerging growth companies such as yours.

    We leverage the power of the Internet so it works for you, including production of a high-definition (HD) online presentation at the fraction of the cost of any comparable firm. Included in our one-time fee is the creation of a comprehensive online company profile, where your prospectus is available online 24/7. We help you save hundreds of hours and thousands of dollars in attorney's fees, investment banking, marketing and promotions, web design and development, and investor relations fees. Our compelling, highly focused approach to directly market your shares to prospective investors maximizes your opportunities for success. A relationship with iValueRich.com extends well beyond the close of your offering. You can continue to market your company across our small-cap investor sites to communicate to new investors and build a long-term shareholder base.
    
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11. I have a specific question, whom should I contact?
    
    

    ValueRich, Inc. 1804 N. Dixie Highway Suite A West Palm Beach, FL 33407 Phone: 561-370-3617

    General questions and comments Contact ValueRich with your general questions and comments. Report a problem Are you having problems using our site? If so please send us an email and we will assist you.

    
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