Webinar: How to Read Your Company's S-1

What is an S-1?

The S-1 is many things.

It’s a signal to investors that your company intends to go public soon

It’s an airing of dirty financial laundry

It’s a list of the total compensation for key executives

It’s a love letter from the founder or CEO to explain to investors why their company is unique

The S-1 is a form that is filed by a company with the SEC when they're ready to go public. It is the initial step, the toe in the water, towards potentially becoming a public company listed on one of the exchanges. Typically, that's going to be the New York Stock Exchange or the NASDAQ.

Hidden within the S-1 are tasty morsels of information about your company, about the people that work there, about how much money they make, how much money they stand to make through this public offer. I love reading the S-1. To me, they're stories. It's the story of a company. It's a company's chance to convince investors that it's a good idea to buy shares of this company.

 
 

What information is actually useful to you as an employee of a company that plans to go public?

  • Will there be an ESPP plan?

  • How much of the company is allocated to the employee share pool?

  • Which senior leaders are compensated in this deal?

  • Will there be a lock-up period?

  • Will there be an opportunity to sell at IPO before the lockup goes into effect? - Not often in the first version of the S-1

So first, let’s meet EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system you’ll use to look up your company’s S-1.

 
 

So, what’s actually in this thing?

This is the table of contents. We've got general information, prospectus, risk factors. In a recent webinar (linked above), we took a deep dive into the recently filed S-1 for the New York-based yogurt company, Chobani.

 
 

My favorite part of the S-1 is really the summary. That's really where we get to know the company. It's kind of their chance to say, “This is who we are. This is why you should invest in us." The use of proceeds is also a fantastic place as an employee that I would find very intriguing.

Typically, the S-1 opens with a letter from the CEO or a letter from the founder. I like to call this the TED Talk because this is kind of the high level, "This is why I started this company. This is why it means so much. We're changing the world. Here's our mission statement. Chobani is the story of a few dedicated everyday people coming together to create something extraordinary." Now, we could probably replace Chobani with any company, right? It's a lovely thought and I agree with them. I love their yogurts. But to be honest, but it doesn't really tell us much about the company. You'll find that these opening statements are a little woo, woo. They're a little over the top in, "We are changing the world. We are doing well by doing good."

 
 

Next, we get to know the NEOs. These are our named executive officers. These are typically the folks in leadership at the company. This is now public information. I guess this was public before, you could probably find it on LinkedIn, but it was never quite organized like this for investors or really, employees to look at. When you're a private company, you can do whatever you want. You don't have to disclose much. Now that you're filing to go public, we have to show everything including total compensation. You’ll notice that throughout the S-1 a lot of numbers are left blank. An S-1 is typically amended a few times before the company actually begins trading on the public market to fill in the blanks.

 
 

Randomly, this is kind of cool. In the S-1, you can actually find out what the 401k match is. That needs to be disclosed to investors. That's going to be a line item on the balance sheet for the company. We actually can see that and match outlined here. Pro tip, if you're interviewing at other places and you know that it's a public company or a potential company that's maybe about to go public, you can actually go into the S-1, remember that control F for “401k,” and actually, you can find out if the company offers a match. I think that's cool.

 
 

Next we have  ESPP plans or Employee Stock Purchase Plans. This is a benefit where employees can typically purchase a certain amount of the company stock once it's public, at a slight discount. Typically, we see ESPP plans be made available to employees either right after the IPO or once the lockup ends, usually about six months in. In Chobani’s S-1 we see that the company plans to offer an ESPP and it looks like employees will be able to purchase shares at a 15% discount and will be able to contribute 10% of their salary. That’s neat!

 
 

Now we get to one of the most important things for you as an employee when your company is potentially about to go public, is the lockup, which means that if you are a shareholder, director, officer, current or former employee and holder of any securities, you will typically be subject to a lockup period. The reason these exist is to prevent shareholders from dumping their stock at the same time. Remember, these employees and investors have been waiting a long time for these shares to be worth something so without a lockup there could be a mad rush to sell and the stock price could suffer. It's a classic supply and demand. Typically we see lockup periods of 180 days. This is very common, pretty standard across all companies going public.

 
 

We’ve only scratched the surface here! There’s so much in this document to unpack!

AJ Grossan