Direct Public Offerings on the Internet: A Viable Means of Obtaining Capital?

Authors

• Jack A. Rosenbloom

Abstract

The high cost of capital has stymied many businesses in their attempts to survive and prosper. But the emergence of the Internet and the explosive growth of e-commerce have created new opportunities for some businesses to explore different sources of additional capital. Many small-to-medium-sized companies have not yet fully appreciated the potential of this rapidly growing global network.

In 1998, 33% of American households were online - a percentage that by 2003, should increase to 51%.] More important, the Securities and Exchange Commission (SEC) estimated that, at the end of 1999, as many as ten million investors had bypassed brokers to take advantage of Internet stock trading. This figure represented about 25% of all retail brokerage transactions in 1999.

The Internet is no longer solely a mechanism for product information and sales. It is now a viable, potentially untapped method for raising business capital. This article focuses specifically on use of the Internet by small-tomedium- sized companies as an alternative to use of traditional public stock offerings.

Part II of this article discusses how this practice began and how it is developing. It also explains how federal securities laws have evolved to make this method of corporate finance possible. Part III examines the legal concerns of Internet direct public offerings (DPOs), analyzing actual DPOs, discussing the SEC' s reaction, and examining the resulting law. Part IV discusses the future of the Internet DPO and the reasons for its slow market acceptance.

Recommended Citation

Jack A. Rosenbloom, Direct Public Offerings on the Internet: A Viable Means of Obtaining Capital?, 5 Computer L. Rev. & Tech. J. 85 (2000)