Direct IPO will be posting the prospectus for Web designing firm Digital Planet on its site before selling shares in the company, said Mark Perlmutter, Direct IPO president.
"We looked at 300 deals in the past 12 months, but we wanted to be selective in our first deal because we knew it would be heavily scrutinized by regulators and investors," he said.
Securities and Exchange Commission officials have clarified their position on stock offerings over the Internet in the past year, making it easier to do such deals.
But unlike a traditional initial public offering, these online transactions will be similar to a venture fund for small investors--giving them a stake in a company but little liquidity until the business goes public.
The arrangement with Direct IPO does not prevent Digital Planet from later going to Wall Street and seeking to launch a traditional IPO.
"We're not intended to replace a full-blown Nasdaq," Perlmutter said. "This is like raising a round of venture financing."
Jeffery Gaul, chief financial officer for Digital Planet, said the company has done three rounds of financing through corporate investors and was looking for another way to raise money.
"If we went through the traditional IPO route, we would have had to go through the educational process to enlighten them what our company is all about," Gaul said. "This method allows us to go to a community that knows about this industry."
He added that Wall Street investors would have likely been momentum investors--expecting large growth quarter to quarter. But those participating through its Direct IPO offering will be longer-term investors, given the limited liquidity of the stock.
Gaul said the company's stock offering circular should be available on the Direct IPO site in the next 45 to 60 days.