Must a company have a specific number of employees to do an IPO?

Question

I'm interested in a job offering from a company that is going for an IPO (Initial Public Offering) in the next 6 months. It is rumored that once the IPO is done they will lay off a lot of employees because there is a requirement for IPO/NASDAQ to have a specific number of employees. I read about the requirements for an IPO but didn't find any such thing.

Are there any kind of strings attached to it? Are there any chances of that rumor being true? Or might there be other threats?

I would love to hear anything that will help me to make my move.

Answer 1

While there is no legal reason to have a minimum number of employees, there can be a practical reason.

They want to look like a good solid investment so that investors will give them money, which is what an IPO is, really. Hiring lots of people is part of that.

Once the investors are committed, they can cut expenses by firing people again.

I have no idea how common this is, but it is a possibility. However, if it were really common, investors wouldn't be fooled anymore.

Also, they risk being sued for fraud over this.

Even if your friend's worry is probably unfounded, you should be aware that working for a startup is always risky. They very often go bankrupt even if they try their best. They can misjudge their intended market. They can get higher expenses than expected. There can be another company with same idea being launched at the same time. Other things can go wrong.

Working for a startup is a risk, but it beats being unemployed, right?

Answer 2

No, there is no minimum employee limit in order for a company to initiate an initial public offering.

Answer 3

Working for a lot of startups, I have seen this cycle. Really it has little to do with making the IPO look good because of number of employees, and is more about making the IPO look good because of planning for the future.

Many times an IPO is released, it will be valued at $1.00 (made up) and the market will soar and spike. Now stock shares are valued at $3.00. Great. Till after the dust settles a bit, and stocks are valued at $0.85.

This is "normal" and good. It would be better if the stocks ended a little higher than their initial value, but... such is life.

Now the initial value of the stock is made up of basically the value of the company's assets, and employees are part of those assets and its earning power. They are also a liability, but that has less impact on initial value than assets.

Sales right after IPO are based on how well a company will do. Part of that is growth. So it looks nicer to say: "We have 500 employees and have been growing by 20% per month." than to say "We have 100 employees".

In other words, before IPO, employees may be hired to make the company look like it is growing. They may be hired because the budget is projected based on expected growth and expected valuation.

After IPO, you get a concrete number. You have your budget. It may be more than you thought, or it may be less. In our example, the real budget (from capital), is only 28% of the entire projected budget, and 85% of the initial value. It's time to make some budget cuts.

Also, normally, there is a period of adjustment, company wide, as a company goes from VC funding, "here, have as much money as you want", to "real world" funding, with stricter limits and less wiggle room.