You’ve raised the capital, spent years building the company, and it’s time. It’s time to translate your blood, sweat and tears into some hard-earned cash. To do so, many decide to take their company public. And this is where an S-1 filing comes into play. For many who are not familiar with the process, it may seem not very clear. But that’s okay because today we’re going to talk about the S-1 itself.

What Is The Purpose Of An S-1 Filing?

The SEC Form S-1 is to register a company’s securities before listing them on a public exchange. So we know an S-1 Filing is pretty important.

The S-1 filing is a four to 500-page document that companies file when they go public. It has a wealth of information.

But the way I read it, there are only three sections that you need to read, and that’s probably around 5 to 10 pages total you need to read. Because I’m a strong proponent of the idea that there is a diminishing return in terms of how much research you do, I believe that you need to maximize what you look at.

More importantly, the form contains the company’s prospectus, which is the precursor to an initial public offering (IPO). For all that is holy in this world, investors MUST take the time to look at the company’s prospectus before they put their hard-earned dollars on the line. 

Did You Know

Did you know that any company that intends to go public and offer equity securities registered with the SEC must file a Form S-1? In a nutshell, the whole purpose of Form S-1 is to allow investors to make an informed decision on whether or not they want to invest in a company and its securities. 

Because the S-1 contains critical financial and business information regarding the company, this decision is much easier than relying on stock tips from friends.

S-1 Filing 5 Second Take Away

• SEC Form S-1 is a registration filing form for companies to complete the registration of securities offering under the Securities Act of 1933
• The SEC legally requires an S-1 filing for all companies looking to register their securities.
• The critical piece of the S-1 filing is the prospectus, which offers vital financial and historical insight into the filing company.
• Any company that fils a Form S-1 with missing or misleading information can be held criminally liable.
• Private companies seeking to raise capital often file a registration statement on SEC Form S-1 to meet certain FIRA (Financial Industry Regulatory Authority)

The Format of the Form S-1

The S-1 has two parts. First, we have the prospectus, which contains all pertinent historical and financial information about the company. I won’t get into the nitty-gritty as I later dive deeper into the prospectus.

Part II contains information that is not mandatory for disclosure to investors. For example, it includes information on the sale of securities that are still unregistered by the filer.

In addition, it provides information about its financial statement scheduling (e.g., when its fiscal year begins). Please note that the second part of Form S-1 is optional. 

Below you’ll see an image of the front page of a Form S-1.

S-1 Filing Cover Page

 The cover page of the S-1 form contains identifying details about the offering and the issuer itself. More specifically, the issuers’ exact legal name, state of incorporation, SIC code, tax ID number, address and telephone number, and a little about the offering itself.

In addition, a quick skim of the cover page will reveal the number of securities to be registered, a proposed offering price if it’s known at that time and the registration fee. 

What Will You Find In The Prospectus?

The next part you’ll find in the S-1 is the prospectus. Within the prospectus is specific information about the issuer, including a description of the company’s business. 

A Business Description

The business description covers the prior three years for smaller companies or from inception if the company is less than three years old. Examples of what’s required in the business description include:

• Basic corporate information.
• Products and services.
• Sources of raw materials.
• Environmental issues.
• Government regulations.
• Research and development.
• Information about employees. 

The Companies Future Plans

The company must also include a description of future plans. For example, plans could consist of those for expansion, increasing the number of employees, growth, and a discussion of the industry and competition. 

A Description of Securities Being Offered & Disclosures

The prospectus part of the S-1 filing also includes a description of the offered securities. Moreover, you’ll see disclosures on the company’s securities, including, for example, prior markets or pricing for securities, unregistered sales, activities, rights and preferences of preferred stock, rights and preferences of other classes of common stock, and outstanding warrants in dividends. 

The prospectus includes the management discussion analysis of financial condition and operation results, i.e. MD&A. MD&A or the Management Discussion and Analysis makes up the bulk of this piece. It is arguably the most critical portion of the registration statement for investors to understand the issuer and its management plans.

For starters, the MD&A requires a discussion of key financial elements and it’s changes over time. For example, the issuer will discuss revenue and expenses and the changes in income and expenses over a time period. In addition, MDNA requires a detailed discussion of the issuers’ future plans and the cost and intended sources of financing for those plans. 

Also in the prospectus is a disclosure of certain information regarding directors, executive officers, certain employees, and those that own 5% or more of the issuer’s outstanding securities. 

Part 2 of the Form S-1

Let’s look at part 2 of the S-1 Filing form. Part two of Form S-1 contains supplemental information and formal legal requirements. Part two also includes the audited financial statements. 

How To Use The S-1 For An Investing Edge

I think we could all agree that we don’t have endless hours in the day to analyze every piece of company information before investing. So instead, we want to make sure we spend our time wisely on each pick.  

 There are a couple of ways to do this. Either you have insider information (illegal), or you can get an edge from the competitive analysis. With competitive analysis, you look at a company similar to the one you’re interested in and find its competitive edge. The point is to see if it can be applied to yours. So it could make this opportunity a better opportunity for investing, even shorting if you wanted to.

 Another popular approach is using Form S-1. You can either find it on the SEC website or search for the company name online.  

Form 10-K

 If a company is in public for a while, I also recommend you read the 10k updated to the S-1 every year. These are essential documents for you guys to check out if you want to have an additional edge. This is particularly powerful when the company just went public because there’s not that much information.

All the news media are putting out the same content and want to have that edge other people don’t. You don’t want to buy the hype that every news channel is pushing out. You want to get an understanding that other people don’t have. And this way, you’ll figure out whether this is a safe investment, whether it’s a worthwhile investment, and potentially what is the game to be had. 

The S-1 is a four to 500-page document that companies file when they go public. It has a wealth of information, but the way I read it, there are only three sections that you need to read, and that’s probably around 5 to 10 pages total you need to read.

Because I’m a strong proponent of the idea that there is a diminishing return in terms of how much research you do, I believe that you need to maximize what you look at.

The Most Import Sections of the S-1 Filing

So, with the multi-hundred-page document, I recommend you look at the following three sections.

1. Business Section

The business section will give you an overview of what the company is. Then, it’s most likely going to have a strategy section to tell you how they plan on entering the market. How they plan on doing better than the competitor, the business value, the value advantage, and what the product is. Often, it will also include the user experience, if it’s a literal product or a website. 

2. Risk Factors Section

The second section I recommend reading is the risk factors section. Again, I can’t emphasize this enough; it is imperative to understand your investment risks. More specifically, the risks highlighted by the management company. Usually, they’re pretty blunt in the section so that you have a pretty good understanding and a pretty good perspective of what the risks are.

You need to figure out how to leverage this information. Obviously, you may need to dig deeper, avoid the investment altogether or perhaps it’s enough for you to be comfortable investing. Therefore, this section is probably even more important than the business overview.

The Management Section

3. Management Section

 The last section I highly recommend is the management section. In this section, the management team talks a lot about stuff that’s sometimes redundant. But, you need to read this just in case you missed anything in terms of value proposition and business differentiation

. And another important part of the section is that it breaks down how you can read the financials. So, when you look at a lump sum of, let’s say, $100 million under research and development, you understand what they’re actually researching and developing.

Undoubtedly, this will create an edge for you; you can figure out whether they’re wasting money or you agree with how they’re spending their money. So when you’re reading this, the first couple of times will be a pain in the ass, but you’ll get better faster and become more efficient, so you know what you read and what you’re void.

Final Thoughts

Form S-1 is typically the most efficient way to get concrete information about a company planning to go public. If you’re interested in investing pre-IPO or shortly thereafter, you must read Form S-1. Head on over to the SEC website for a list of companies doing an S-1 filing.