How Much Revenue Do You Need to Go Public?

Going public, typically through an Initial Public Offering (IPO), allows a company to raise capital by selling shares to the public. This funds expansion, debt reduction, or research and development. The IPO path involves navigating financial requirements and investor expectations. No single revenue figure guarantees an IPO; readiness depends on financial metrics, market conditions, and preparation.

Revenue Targets for Public Listing

Specific revenue requirements vary depending on the stock exchange and listing tier a company targets. The New York Stock Exchange (NYSE) and Nasdaq, major U.S. exchanges, have different quantitative standards.

While some exchanges might have low or non-existent explicit revenue minimums for certain listing tiers, practical revenue levels observed in successful IPOs are much higher. A common benchmark for companies going public is annual revenue in the range of $100 million to $250 million, with some larger companies generating $500 million or more. The median revenue for U.S. venture-backed software companies at IPO has shifted, reaching around $189 million recently, more than double the median from before 2018. This trend indicates that companies are reaching greater scale before pursuing public offerings.

Nasdaq offers listing standards based on income, equity, or total assets/revenue, with its Global Select Market having requirements like minimum aggregate income or substantial market capitalization. The NYSE also provides financial standards, including earnings or global market capitalization tests. These formal requirements are distinct from the practical revenue levels investors expect, which are influenced by prevailing market conditions and the company’s growth trajectory.

Even if an exchange’s minimum revenue requirement is met, the practical threshold for attracting investor interest and justifying IPO costs is higher. IPO costs can range from 7% to 16% of capital raised, necessitating a revenue base. The actual revenue needed is dictated by market appetite and the need to demonstrate a viable, self-sustaining business model.

Financial Health Beyond Top-Line Revenue

Beyond revenue, investors and exchanges scrutinize financial metrics to assess a company’s viability. These include profitability, revenue growth rate, cash flow, and balance sheet strength.

Profitability demonstrates a company’s ability to convert revenue into earnings. Metrics like net income, EBITDA, and gross profit margins provide insights into operational efficiency. While some high-growth companies may go public without immediate profitability, they need to show a path to generating consistent earnings in the future.

The revenue growth rate is another metric, especially for companies not yet profitable. A strong, sustained growth rate indicates market demand and future revenue potential, which can offset current losses in the eyes of investors. Rapid expansion signals a business capable of capturing significant market share.

Positive operating cash flow indicates a company’s ability to generate cash from operations to fund activities without external financing. Consistent cash generation provides financial stability and flexibility for reinvestment. A healthy balance sheet reinforces financial strength, characterized by manageable debt and a sound asset-to-liability ratio.

Preparing Financial Statements for an IPO

Companies aspiring to go public must establish a financial infrastructure and adhere to reporting requirements. One fundamental requirement is the provision of several years of audited financial statements. Typically, companies must present three years of audited financial statements, though emerging growth companies (EGCs) may sometimes present two years. These audits must be conducted by an independent public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB).

Financial statements must be prepared in accordance with Generally Accepted Accounting Principles (GAAP) in the U.S. GAAP provides consistency and transparency, allowing investors to compare financial information across companies. This includes rules for revenue recognition, expense matching, and asset valuation.

Companies must establish internal controls over financial reporting (ICFR). The Sarbanes-Oxley Act (SOX) mandates that public companies certify their internal controls. Strong internal controls mitigate risks of financial misstatements and build investor confidence. A company also needs a strong internal finance and accounting team to meet continuous reporting demands, including regular filings like Form 10-Q and Form 10-K.

Valuation and Market Capitalization Requirements

The financial performance of a company influences its valuation, which determines its ability to meet market capitalization requirements for listing on a stock exchange. Investment bankers employ various valuation methods, such as discounted cash flow analysis, comparable company analysis, and precedent transactions, to arrive at a company’s estimated worth. Strong and consistent revenue growth, coupled with healthy profitability and positive cash flow, positively impacts these valuations.

Stock exchanges like the NYSE and Nasdaq have minimum market capitalization thresholds. The NYSE has a global market capitalization test which may require $200 million or more. Nasdaq also has market capitalization requirements that vary by tier, with the Nasdaq Global Select Market often requiring a minimum market value of $110 million or more, depending on the specific standard met. These thresholds ensure that only companies of a certain size and stability are admitted to the public market.

The revenue needed for an IPO depends on investor appetite and market valuation to achieve market capitalization. Even if minimum listing requirements are met, IPO success depends on attracting investor interest to raise capital and establish a robust market capitalization. This market validation reflects the company’s future earnings potential and overall financial health.