The IPO (initial public offering) pipeline looks robust as we enter 2025. IPOs offer a chance for many investors to join in a company's potential success for the first time. For companies, going public is a major milestone, signaling growth and opening access to substantial capital.
With more listings coming soon, investors will be busy deciding if these companies are good investments for them. But where do you begin? The S-1 or IPO prospectus. Here we’ll provide an overview of the primary IPO filing and the key sections to review.
What is an S-1?
An S-1 is a registration document filed with the U.S. Securities and Exchange Commission (SEC) by companies planning to list shares on a public exchange like the New York Stock Exchange or NASDAQ. It provides detailed information about the company’s business, financial condition, management, and the terms of the offering. Think of it as a window into the company's inner workings—its strengths, weaknesses, and goals.
The S-1 is an essential read for anyone considering investing in an IPO. As the first public document made available by private companies, the S-1 aims to provide information similar to that found in annual and quarterly filings for already public companies. This information offers investors the insights they need to make smart investment decisions.
Each section of the S-1 aims to provide key information to potential investors. The goal is to help investors make an informed investment decision based on material company disclosures. While the full S-1 should be reviewed before making an investment decision, some sections contain the most important information. We’ll highlight them below.
Key Parts of the S-1 Filing
To effectively evaluate a company’s S-1, you need to understand its main components. Here are the most important sections and what they reveal:
1. Business Overview
This section explains what the company does, its products or services, market position, and competitive landscape. It often includes a discussion of the company’s vision and growth strategy. The company offers this overview to share its story and value in a summarized form. It also gives context for the detailed information later in the S-1.
What to Look For:
- A clear and compelling business model.
- Market opportunity (size, growth potential, and trends).
- Differentiation from competitors.
2. Risk Factors
A company must disclose risks that could significantly affect its performance. These might include market risks, industry-specific challenges, regulatory issues, or internal vulnerabilities like reliance on key personnel.
What to Look For:
- Critical risks that could hinder growth or profitability.
- Risks unique to the company’s industry or operations.
3. Management and Leadership
The S-1 includes profiles of key executives and board members, along with their experience and past performance.
What to Look For:
- Experienced and credible leadership.
- Evidence of success in scaling or managing similar companies.
Interested in browsing the private company investment opportunities available on EquityZen's marketplace?
4. Financial Information
This section provides historical financial data, including revenue, profit or loss, expenses, and cash flow. Key financial statements include a condensed income statement, balance sheet, and cash flow statement. For many companies, this section will represent the first time the public has access to detailed financial results. These results give a view into the financial health of the company, including growth, margins and profitability.
What to Look For:
- Revenue growth or trends.
- Profitability (or a clear path to profitability).
- Healthy cash reserves and manageable debt levels.
5. Use of Proceeds
Here, the company outlines how it plans to use the funds raised from the IPO. Proceeds may be used for research and development, debt repayment, expansion, or other purposes.
What to Look For:
- Clear and strategic allocation of funds.
- Alignment between the company’s goals and its use of IPO proceeds.
6. IPO Terms
This part of the S-1 will state the number of shares being offered to the public. It also gives the estimated price range and the total amount the company aims to raise.
What to Look For:
- Target valuation relative to peers in the industry.
- Reasonable pricing based on the company’s fundamentals.
Things to Keep in Mind
While these are standard sections to most S-1s, not all S-1s are created equal. Every company will provide different levels of disclosures and present information differently. These sections are a good starting place for determining if a specific company is a smart investment in the context of your overall investment portfolio.
The S-1 can change as a company prepares to go public. For this reason, it’s important to check for amendments. Companies may provide new disclosures, update financials, and change the price of the shares they plan to offer. These changes can materially impact the investment opportunity.
While the S-1 is an important document to review when analyzing a public company, it is also important to analyze any available private market data. What happened while the company was still private? Investors should understand the IPO valuation compared to the last private funding round valuation. Has the valuation grown or contracted? Some companies that last raised private funding during the venture boom may have a lower IPO valuation.
In addition, it helps to know the price at which shares of the company traded in the private market. Platforms like EquityZen provide private market data like historic bids, asks, reference prices and market scores. This information can help investors with investment due diligence.
Will 2025 be the year that officially reopens the IPO market? While it’s too soon to say, investors can prepare for a resurgence in IPOs by understanding the S-1. It’s a crucial document to review to make smart investment decisions in the public market.
The information is intended for reference only and does not constitute a recommendation or personal financial advice. Investors should review the full S-1 before making investment decisions.
Interested in browsing the private company investment opportunities available on EquityZen's marketplace?
