Understanding Nasdaq Listing Requirements for Successful Market Entry

Navigating the Path to a Public Listing: Your Comprehensive Guide to Nasdaq Requirements

The Nasdaq Stock Market is the second largest premier global electronic exchange in the United States. For many companies, a Nasdaq listing is a significant milestone, opening unparalleled doors for growth and visibility. But what does it actually take to get there?

‍

The Nasdaq listing process typically takes about eight weeks and starts with submitting an application for Nasdaq staff to review, ensuring only unrestricted securities are counted for public share calculations. Within two to three weeks, an initial review concludes with a comment letter. Companies must also meet requirements for a minimum number of round lot shareholders holding unrestricted securities of a certain market value. After addressing Nasdaq's comments, the review finishes, and the company gains Nasdaq listing approval around the seven to eight-week mark.

‍

Several factors come into play when applying, including listing and annual fees, alongside specific financial and liquidity requirements. Nasdaq provides its own helpful guide on these listing requirements and the overall process to assist companies.

‍

In today's digital age, accessing public markets has become more streamlined for investors. Online platforms have further simplified this access, enhancing the ease of digital capital formation.

‍

Core Pillars: Corporate Governance and Financial Thresholds

To be listed on Nasdaq, companies must meet several minimum requirements. These include corporate governance standards designed to bolster investor confidence, covering various governance and financial benchmarks.

‍

Stockholder’s Equity

Companies must demonstrate a minimum threshold of net tangible assets. For instance, the Nasdaq Capital Market requires a minimum of $5 million in stockholder’s equity under its equity standard. Companies also need to report their income from continuing operations to meet financial health criteria.

• For the Nasdaq Global Select Market, the minimum stockholder’s equity is $55 million.
• For the Nasdaq Global Market, it's $15 million by the income standard or $30 million by the equity standard.

‍

Board Composition and Independence

Nasdaq mandates specific requirements for board composition.

• Boards of directors must have a majority of independent directors.
• Audit committees must include independent directors who "satisfy requirements of SEC Rule 10A" and comprise at least three members.
• Audits for Nasdaq-listed companies must be performed by independent public accountants registered with the Public Company Accounting Oversight Board (PCAOB).

‍

Financial Reporting and Share Price

The standards for financial reporting are clear. Companies must make all annual and interim reports available to shareholders, achievable electronically or via the company’s website.

‍

Minimum Share Price:

• Nasdaq Capital Market: $4
• Nasdaq Global Select Market: $4
• Nasdaq Global Market: Between $8 and $10.

‍

Alternative Routes to Nasdaq: Regulation A+ as a Strategic Stepping Stone

An alternative pathway to a Nasdaq listing involves leveraging a Regulation A+ offering, which can be a more accessible and cost-effective approach than a traditional IPO. Regulation A+ is often seen as a scaled-down version of an IPO, particularly concerning regulatory requirements.

‍

Companies frequently tap into the private placement market for initial capital before eyeing a public listing. A Regulation A+ raise allows a company to engage its customer base to achieve its capital raising objectives.

‍

Trading data from the private placement market prior to listing can influence valuation metrics for Nasdaq. The communicative nature inherent in a Regulation A+ raise means customers who become shareholders receive ongoing company updates and communications.

‍

A private company can utilize a Regulation A+ offering to raise capital (up to $75 million) and transition to public markets without undertaking a traditional IPO. This route cultivates strong investor relations, often by converting existing customers into shareholders which is a generally more straightforward path than approaching individuals unfamiliar with the company.

‍

This alternative route is not without its considerations. When moving from a Regulation A+ capital raise to a public listing, it's imperative to diligently address any new compliance rules and regulations, as they can differ significantly.

‍

Understanding IPOs and Direct Listing Processes

Traditional IPOs

Traditional IPO structures involve underwriters who determine the value of a company and its shares. A firm commitment underwritten public offering is often a component of meeting regulatory standards. While this is often considered the "default" method for going public, it can be expensive, and not every company is positioned to allocate significant capital for this journey.

‍

Direct Listings

This is where direct listings offer an alternative. Direct listings allow companies to begin trading without a traditional capital-raising event. When employees or shareholders specifically wish to sell their existing shares to the public, they can utilize direct listings. These are generally more cost-effective but come with their own set of risks. No sale is fully guaranteed, and no long-term investors are entirely shielded from potential volatility during the listing and sale process. When weighing a direct listing against an IPO, a careful assessment of your company's financial position is essential to determine the most viable option.

‍

Decoding Listing Requirements Across Nasdaq Market Tiers

The specific requirements for a Nasdaq listing vary depending on the market tier your company targets. These requirements are often based on market capitalization, with distinct thresholds for each tier.

‍

The Nasdaq Global Select Market, for example, has more stringent requirements than the Nasdaq Global Market. Each tier has its own initial listing requirements that must be satisfied for approval.

• Nasdaq Global Select Market: Minimum market capitalization of $350M (domestic) / $200M (foreign).
• Nasdaq Global Market: Minimum market capitalization of $400M (domestic) / $250M (foreign).
• Nasdaq Capital Market: Minimum market capitalization of $300M (domestic) / $150M (foreign).

Each tier also has specific criteria for listing a primary equity security, encompassing market capitalization and shareholder distribution requirements. Selecting the appropriate tier is a crucial decision, as the differences can be significant, and the choice should align with your company's profile.

‍

A Closer Look: The Nasdaq Global Select Market

The Nasdaq Global Select Market represents the highest tier of the Nasdaq stock market, renowned for its demanding initial listing requirements. Companies aspiring to this prestigious market must meet rigorous financial, liquidity, and corporate governance standards.

‍

To qualify, a company needs a minimum market value of $110 million and at least 1.25 million unrestricted publicly held shares. The minimum bid price for shares is $4. Additionally, companies must satisfy one of these financial criteria:

1. Income from Continuing Operations: A minimum aggregate income of $11 million over the prior three fiscal years, or at least $2.2 million in two of the prior three fiscal years.
2. Market Capitalization: A minimum average market capitalization of $550 million over the prior 12 months, or $850 million over the same period.

These strict requirements ensure that only companies with robust financial health and exemplary governance practices are listed, offering investors a high degree of confidence.

‍

Case Study: Monogram Orthopaedics' Journey from Regulation A+ to Nasdaq

Monogram Orthopaedics is an orthopaedics robotics company that develops advanced robotic surgical systems designed to improve precision and personalization in orthopaedic joint replacement procedures. Their technology combines robotics, AI-driven surgical planning, and 3D-printed custom implants to enhance outcomes for patients undergoing knee and hip replacements.

‍

By turning to community capital raising, Monogram successfully raised over $57 million from retail investors through various Reg A+ offerings between 2019 and 2023. These raises were integral to their ability to eventually trade shares on Nasdaq in May of 2023.

‍

This strategic approach to capital raising and investor relations, focusing on converting customers into shareholders, allowed them to raise capital from a dedicated community that already held a positive view of the company.

‍

Monogram's journey also illustrates the process for a company transferring between Nasdaq markets, ensuring compliance with applicable fees and listing requirements. In May 2023, Monogram achieved its goal of a Nasdaq listing. Following their Regulation A+ to IPO journey, Monogram has continued its growth, raising an additional $13 million in subsequent capital raises. To manage these investments, Monogram's Investor Portal offers an accessible platform for investors to engage with the company.

‍

Meeting Liquidity Requirements and Managing Market Maker Relationships

Beyond financial prerequisites, Nasdaq listing also involves liquidity and market maker requirements.

• Companies must have a specific number of active market makers to ensure liquidity. Companies on the Nasdaq Global Market are required to have between three and four Market Makers at all times.
• Maintaining a minimum trading volume and ensuring trading occurs on a substantial portion of days is crucial for continued listing.
• Companies on the Nasdaq Global Select Market can have a market value of unrestricted publicly held shares as high as $1.25 million.

After listing, maintaining liquidity is essential. This means having sufficient capital on hand for needs like managing cash flow or diversifying funding sources. Additionally, companies must be registered with the SEC, remain in compliance with regulations, and consistently uphold best compliance practices.

‍

The Application Process and Initial Listing Hurdles

As mentioned, the application process for a Nasdaq listing typically takes around eight weeks. Companies must be audited by public accounting firms registered with the PCAOB. Once the application is submitted, it’s a period of review to determine acceptance. An independent third-party valuation is often required to ascertain the market capitalization and price of a company's securities. Compliance with the Exchange Act is mandatory for all listed companies.

Obligations Beyond the Application

Beyond the application itself, there are multiple annual fees and ongoing reporting obligations. Fees can include an application fee and an entry fee, which can amount to several hundred thousand dollars. Reporting obligations include sending annual and interim reports to shareholders.

‍

Companies must also adhere to compliance monitoring and remediation processes, which can involve annual meetings, maintaining an audit committee, and ensuring the company’s board of directors retains a majority of third-party, independent directors.

Sustaining Your Listing: Ongoing Requirements

Maintaining a Nasdaq listing requires continuous adherence to ongoing requirements, which span corporate governance, financial, and liquidity standards. These are designed to ensure listed companies maintain high levels of transparency and integrity, thereby protecting investors and ensuring market stability.

‍

Key ongoing listing requirements include:

‍

In addition to these, companies must comply with corporate governance standards, such as having a majority of independent directors on the board, and maintaining audit and compensation committees. Disclosure of executive compensation and related-party transactions to shareholders is also required.

‍

Furthermore, listed companies must file periodic reports with the SEC to ensure ongoing financial transparency. Failure to meet these requirements can lead to delisting proceedings, underscoring the importance of continuous compliance. Adherence allows companies to maintain their Nasdaq listing, ensuring continued access to capital markets and investor confidence.

The Advantages of a Nasdaq Listing

Being listed on the Nasdaq index offers a variety of benefits. As a listed company, you gain access to broader capital markets.

• Access to Capital and Follow-On Offerings: This is arguably the most significant benefit. Nasdaq is a recognized national securities exchange, providing a robust regulatory framework.
• Enhanced Brand Visibility: Being on the second largest stock exchange can bring significant attention to your company.
• Market Credibility: A Nasdaq listing often enhances a company's standing and credibility.
• Secondary Market Liquidity: Nasdaq provides a secondary market where early investors and employees can sell their shares with greater ease. This offers existing shareholders greater liquidity and market access.
• Mergers and Acquisitions: The visibility afforded by a Nasdaq listing can also generate advantages in M&A activities, helping potential investors and partners find your company.
• Long-Term Growth Capital: A Nasdaq listing is a key step towards accessing long-term growth capital.

‍

Leveraging Digital Capital Raising on your Path to Nasdaq

For companies navigating the path to a Nasdaq listing, leveraging digital capital raising offers a strategic advantage in overcoming several key hurdles.

‍

This modern approach, often utilizing frameworks like Regulation A+, directly assists in meeting Nasdaq's demanding financial prerequisites by enabling companies to raise significant capital from a broad base of investors, including their own customers. This not only helps satisfy substantial stockholder’s equity and market capitalization requirements but also aids in achieving the necessary number of round lot shareholders, a critical liquidity metric for Nasdaq.

‍

Furthermore, a successful digital capital raise can serve as a powerful validation of a company's market appeal and business model, enhancing its credibility and potentially influencing valuation metrics as it prepares for a public offering.

By streamlining the investment process and fostering direct engagement with a community of shareholders, digital capital raising provides a more accessible and often cost-effective stepping stone towards building the  financial foundation and investor base for a successful Nasdaq debut.

‍

Strategic Planning for a Successful Nasdaq Listing

Many key considerations factor into building your capital formation strategy. Strategic planning is fundamental for a successful Nasdaq listing. Ensuring compliance with Nasdaq's requirements is crucial for maintaining your company's listing and achieving long-term success. Building the right foundation, based on your chosen pathway, is integral. Understanding primary market conditions is also essential.

‍

The various pathways to listing each have different requirements, and the nuances between, for example, the Nasdaq Capital Market and the Nasdaq Global Select Market requirements, can be both subtle and significant.

‍

Assembling an advisory team to help navigate these decisions and generating a clear roadmap from your initial capital raising efforts to your public market offering can be hugely beneficial. Leveraging the tools at your disposal, including engaging retail investor communities interested in your offerings, is key to crafting the best modern approach to public market capital formation.

‍