Alternative Financing for Food Startups: DPOs

by Adam on August 19, 2013

I had a meeting a number of months ago with a woman who was explaining the benefits of alternative sourcing of funding, specifically for food companies. Her expertise was in an area of finance that I had never heard of before, but have since learned much about, called Direct Public Offerings (DPOs), which are primarily of use for brick-and-mortar or physical food-related businesses.

In a nutshell, DPOs allow entrepreneurs to raise money from the public, specifically the community that will be served by whatever the business is. This is particularly of use for brick-and-mortar food startups, such as bakeries, restaurants and grocery stores. Coincidentally, one of the most recent examples of a successful DPO was the funding of People’s Community Market in West Oakland, CA. Up until this point, the people of West Oakland were without a grocery store, and so PCM was envisioned as a way to fill that void. Unfortunately, grocery stores aren’t known for their high return on investment, so traditional financing avenues were not an option. Instead, Brahm Ahmadi, co-founder of PCM turned to the very patrons that would frequent the new storefront, and offered them an opportunity, through a direct public offering, to invest directly on the new store. While the new ruling on investing from individuals may change this, one of the primary benefits of a DPO is to raise money from members of the community, rather than accredited investors (although accredited investors can still be part of the DPO).

There are several benefits to DPOs as a way to raise money, which include:

  • Ability to raise money from investors that are atypical (i.e. not banks or venture capitalists)
  • Opportunity to advertise the offering publicly to the community you are investing in
  • Freedom to sell the investment to the community at the terms that you want
  • Flexibility to offer unrestricted securities that can be resold to others

These are only a subset of the reasons to consider doing a DPO, though there are requirements and other things to consider before embarking on any fundraising initiatives, so make sure to consult the services of a competent advisor.

The Cutting Edge Capital website offers some great insight into the advantages of DPOs, what some of their nuances are and how best to use them to your advantage as an entrepreneur. It’s also a great resource if you’d like to learn more and find out how best to make use of DPOs for your next funding opportunity.

http://www.cuttingedgecapital.com/what-is-a-direct-public-offering/

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