That compares with an average of 11.6% for conventional IPOs, according to a study of 1,200 offerings done by Richard Carter, associate professor of finance at Iowa State University.
"If all you're doing is raising capital, it's expensive," Brutoco said. "I look at it as marketing when I've converted customers into true believers."
But what do you do if you're a start-up and don't have a huge customer base to tap for funds? If you're like Spring Street Brewing Co., you put your stock offering on the Web and raise $1.6 million directly from people who may never have even tried your product.
The New York-based microbrewery's successful 1995 offering, the first-ever Internet initial public offering, created a heady buzz about the medium's potential to circumvent Wall Street and turn the securities industry on its ear. So far, however, reality hasn't matched the hype. Successful cyber offerings like Spring Street Brewing are a rarity.
But entrepreneurs like Clay Womack believe the Net will ultimately prove a boon to capital-hungry firms and investors alike. Womack's Santa Monica-based company, Direct Stock Market Inc., is one of a handful of online clearinghouses where investors can find information about DPOs and private placements that they otherwise might never have known about.
"Wealthy investors shouldn't be the only ones to have the opportunity to invest in early-stage companies," Womack said. "This gives the little guy a chance to build his own venture capital portfolio."
The only hitch is that there's no secondary market for most DPO shares at present, meaning that buyers have no easy means of recouping their investment, much less realizing a profit.
Petillon says an investor who purchases these securities, particularly a SCOR stock, essentially is betting that the company will grow large enough to do a bigger public offering--a la Ben & Jerry's--that will lead to active trading of the shares.
In an attempt to generate some liquidity, the Pacific Stock Exchange recently created the SCOR Marketplace program for secondary market trading of SCOR and Reg A securities. But so far no small firms have been listed under the program, meaning they either can't meet the exchange's listing requirements or found the process too costly to bother.
Likewise, Womack is working to secure regulatory approval for an Internet-based bulletin board trading system that would allow buyers and sellers of these stocks to find one another online.
