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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.

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    The mention of NASDAQ suggests that this is the US, but you don't otherwise say. Laws tend to be specific to countries, so it's best to specify.
    – Brythan
    Sep 18, 2016 at 21:51
  • Sorry I forgot. Yes the IPO is going to happen in US and they are not hiring in US either. They are hiring in another country (which Im from, obviously).
    – Nuh
    Sep 19, 2016 at 3:33
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    Yes, there must be at least one guy to collect all the money.
    – Five Bagger
    Sep 19, 2016 at 5:31
  • Shouldn't this be migrated to the workplace.se?
    – Mindwin Remember Monica
    Sep 19, 2016 at 12:31
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    I'm voting to close this question as off-topic. You are not asking about whether to buy this stock, so it's not a personal finance question.
    – NL - Apologize to Monica
    Sep 19, 2016 at 16:20

3 Answers 3

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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?

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  • This is a great answer because it answers the question and helps to identify a potential cause of the rumor.
    – user45657
    Sep 19, 2016 at 11:46
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    "However, if it were really common, investors wouldn't be fooled anymore." That's just not true. Investors look at a lot of things and with startups some of it is down right silly. They choose what they think will make the best return, even if there is evidence to the contrary. A lot of times it may be superstitious or made up. It's almost like legalized gambling.
    – coteyr
    Sep 19, 2016 at 15:58
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    @coteyr "it's [...] legalized gambling" fixed that for ya ;)
    – james turner
    Sep 19, 2016 at 20:51
  • Working everywhere is risky. Boeing is definitely not a startup, and it laid off several thousand people this year. Many titans of industry had major rounds of layoffs through 2008 and 2009.
    – quid
    Sep 19, 2016 at 21:11
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No, there is no minimum employee limit in order for a company to initiate an initial public offering.

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  • Thanks for the reply quid. Is there any threat to the employees anyways? The quick hiring they are doing, does it relate to anything wrong? A friend of mine said that once IPO is done they will layoff the employees so as to reduce the expense in order to increase their share price or something. He isn't an expert on this so it might be gibberish.
    – Nuh
    Sep 19, 2016 at 3:34
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    Once you accept that there is no legal requirement to have a specific number of employees (which I believe to be correct) you are then asking if the company may believe that it is more acceptable to do the IPO or ask for the price they want based on having a certain number of employees. This is a question of the views of the upper management, which is hard to assess in the general case. +1 for the answer that addresses the question as asked.
    – Ross Millikan
    Sep 19, 2016 at 4:33
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    @Gage, Any commentary I could have about rapid hiring of an unknown number of people to an unknown company that might be in the early stages of an IPO would be completely speculative. I will say though, that if someone tried to convince me that management is just hiring people because there is an employee count requirement at NASDAQ and after the IPO all these people will be let go, I would not put any weight to any of their arguments because that whole concept is so woefully uninformed.
    – quid
    Sep 19, 2016 at 21:19
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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.

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