"DPOs make sense primarily for companies that have a passionately loyal, almost fanatical following," Petillon said. "That core base of constituents is critical for success."
Reaching those hard-core fans on a shoestring budget has made for some quirky and eclectic marketing campaigns.
Forget slick presentations and pricey tombstones in national business publications. Most of Quinn's affinity group--devotees of alternative medicine--had never owned stock and were suspicious of Wall Street to boot. So he swapped mailing lists with a homeopathic bookseller, ran ads in alternative medicine newsletters and shipped announcements out with every drug order.
He also spent countless hours on the phone with customers.
"We'd start with the basics, like what is a stock," said Quinn, whose Albany, Calif.-based Hahnemann Laboratories Inc. logged sales of $691,000 last year. "It was incredibly time-consuming, but it also helped me connect with my customers."
Other entrepreneurs have used their own products as a marketing tool, slapping stock offering announcements on everything from beer labels and clothing tags to coffee-bean bags and macaroni-and-cheese boxes.
Red Rose Collection Inc., a Burlingame, Calif.-based mail order house, went a step further. Not only did the company plug its shares in its catalogs, it offered its 450,000 customers the opportunity to receive a lifetime 10% discount on all future merchandise purchases as a reward for buying at least 10 shares of the $10 stock.
The company got 5,000 takers and raised more than $2 million in expansion funds. In addition, Red Rose has cemented a lifetime relationship with some of its best customers, who, as shareholders, will be reluctant to shop elsewhere, says co-founder and President Rinaldo Brutoco.
"I'd rather give a 10% rebate to my existing customers than spend a lot of money looking for new ones," Brutoco said. "This is the ultimate in relationship marketing."
None of this comes cheap, however.
Although there are no underwriting fees coming straight off the top as there are with a traditional IPO, expenses for legal, accounting, marketing and other crucial services can add up fast in a DPO. And because these costs are spread over a much smaller offering amount, they can look pretty pricey in percentage terms.
Consider that Quinn spent more than $100,000 on upfront fees, or about 21% of the amount raised. Brutoco estimates that after figuring in people costs, about 30% of his offering went to expenses.
