Joseph Lucosky is the Managing Partner of Lucosky Brookman, a leading law firm in the world of microcap IPOs and Nasdaq/NYSE listings.
The U.S. Securities and Exchange Commission (SEC) recently approved The Nasdaq Stock Market’s (“Nasdaq”) proposal for sweeping changes to the Nasdaq Capital Market listing standards—marking one of the most consequential regulatory shifts in recent years for microcap and emerging growth companies seeking to go public or uplist from the over-the-counter (OTC) markets.
The new rules fundamentally alter the capital-raising calculus for founders and CEOs navigating the path to Nasdaq. Understanding these changes isn’t optional—it’s essential to building a public-ready company in today’s evolving regulatory landscape.
A Tight Window For Pending Applicants
The first (and most time-sensitive) element of the rule change was the so-called grandfather provision. Companies with Nasdaq listing applications pending as of March 12, 2025, had a 30-day grace period to price their offerings under the old standards. That deadline expired on Friday, April 11, 2025.
This limited window required urgent action for companies in the final stretch. Diligence, deal documentation and roadshow activities had to be accelerated to avoid falling under the more stringent new regime. Plenty of companies sprinted to make it across the finish line and unfortunately, most didn’t. Those who missed it now face substantially higher capital requirements, particularly if they are not yet profitable.
A Tiered Standard: Profitability Now Matters More Than Ever
At the heart of the new framework is a bifurcated standard based on financial performance. Nasdaq has drawn a bold line between companies that can demonstrate profitability and those that cannot. Companies that satisfy the net income standard, defined as at least $750,000 in audited net income in the most recent fiscal year or in two of the past three fiscal years, must raise a minimum of $5 million in their IPO. This is a relatively attainable target for companies with proven bottom-line performance.
In contrast, companies that do not meet this profitability threshold must now raise at least $15 million in their IPO, with proceeds coming exclusively from the sale of newly issued shares—registered shares held by selling stockholders will no longer count toward this threshold. For pre-profit, high-growth companies, this represents a meaningful barrier. Nasdaq is effectively signaling that companies emphasizing market share over margin must demonstrate broader investor support and stronger capitalization to warrant a listing.
New Hurdles For OTC Uplisting Candidates
The rules also introduce differentiated pathways for companies seeking to uplist from the OTC markets, depending on their historical trading activity.
Companies that can demonstrate active trading (defined as an average daily volume of 2,000 shares over 30 trading days, with trading on at least 50% of those days) are exempt from the new minimum offering requirements. These companies may still count legacy or selling shareholders toward the public float.
This provision recognizes that established OTC companies with engaged shareholder bases have already validated their market appeal. For them, the path to Nasdaq remains relatively unchanged.
However, OTC companies without sufficient trading volume will be treated as if they were conducting a fresh IPO. The same $5 million/$15 million offering size requirements apply, depending on profitability.
This creates a critical distinction: OTC companies must now carefully evaluate their trading metrics to understand which listing rules apply—and may need to invest in investor relations, liquidity-building strategies, or pre-uplist capital raises to meet the new benchmarks.
Strategic Implications: The New IPO Math
The capital markets environment has already been challenging for many small-cap issuers. According to our firm’s internal data, the median offering size for microcap IPOs in 2024 was approximately $7 million.
Under the new framework, a significant portion of companies will now need to double their offering size to qualify for a Nasdaq listing—unless they can meet the profitability standard. That’s a steep climb.
The implications are clear:
• Dilution may increase as companies sell more equity to meet higher capital thresholds.
• IPO timelines may shift, with some founders choosing to delay their listing until they can show profitability.
• Alternative listing strategies—such as concurrent private placements or dual-track processes—may become more prevalent.
• Reverse mergers and Direct Listings could experience a resurgence, offering another route to public markets under a different regulatory lens.
What Founders, Bankers And Boards Should Do Now
For visionary CEOs and founders, the message is simple: you must think more strategically—and earlier—about your go-public roadmap.
1. Profitability vs. Capital Raise: Assess whether your company can realistically meet the Net Income Standard. If not, plan for a $15 million IPO or an alternative listing strategy and consider how that affects your capitalization strategy, valuation expectations, and runway.
2. Reevaluate the Timing: If you’re not ready to clear the new hurdle, postponing your listing may be wise. Use that time to shore up your financials, strengthen governance, and build a more compelling equity story.
3. Understand Your Float Composition: Ensure your expected public float meets the updated rules. If your offering includes a large selling stockholder component, adjust accordingly.
4. OTC Companies Must Audit Their Liquidity: Review your historical trading volume. If you’re falling short, now is the time to ramp up market visibility—whether through consistent news flow, analyst coverage, or engaging market makers.
5. Legal Counsel Must Lead: This is no time for transactional passivity. Capital markets advisors must take a quarterback-style approach to help founders pivot quickly, structure offerings efficiently, and manage investor expectations in light of the new landscape.
A More Robust Public Market, But A Higher Bar
Ultimately, Nasdaq’s revised listing standards reflect a growing emphasis on financial resilience, market integrity, and investor protection in the microcap space. For companies that meet the criteria, this may translate into stronger aftermarket support and enhanced credibility.
But for many others, the bar has been raised. These new rules demand more than just a good story—they require real performance, thoughtful planning, and strategic execution.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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