Client Alert: The New Terrain for Going Public—Strategic Insight for Capital Raisers Amid Regulatory Change
Date: July 31, 2025
Key Regulatory Changes and Risks for Today’s Capital Raisers
- Enhanced Disclosure Requirements: Boilerplate or generic risk factors are no longer sufficient. Disclosures must be tailored, specific, and address company-unique vulnerabilities, especially in areas like cybersecurity and climate risk.
- Governance Standards: Board composition and independence are under the microscope. Audit quality and internal controls face heightened review, with narrowing exemptions for smaller issuers.
- SPACs and Direct Listings: New rules impose stricter requirements on projections, underwriter liability, and conflict-of-interest disclosures. Due diligence and documentation standards are significantly higher.
- Cybersecurity and Climate Disclosure: Companies must now report material cybersecurity incidents quickly and provide detailed governance information. Climate-related disclosures are required in annual and offering documents.
- Personal Liability for Gatekeepers: Enforcement actions increasingly target not just companies, but also individual officers, bankers, auditors, and compliance professionals for failures in supervision, diligence, or disclosure.
- Marketing and Investor Vetting: The SEC is closely reviewing marketing materials and investor qualification processes, especially for Regulation A+ and PIPE transactions.
- Transparency and Reporting: New beneficial ownership and know-your-customer rules create additional documentation and compliance burdens, particularly for family offices and high-net-worth investors.
A Tighter, Faster, Riskier Market
Volatility and innovation define today’s go-public environment for small issuers. While appetites for growth capital remain robust, 2025 brings new constraints and higher scrutiny. The SEC’s drive for enhanced disclosures and gatekeeper accountability has matured well beyond the flexibility seen during the pandemic. Evolving SPAC regulations, new cybersecurity directives, and expanded climate-related requirements put fresh burdens on issuers and advisors. Enforcement actions increasingly target not just companies, but also individual officers, bankers, auditors, and other professionals. Companies must align with both the letter and the spirit of fast-changing regulations to succeed.
- Where to Begin: Assessing Readiness for Public Markets
Governance “readiness” is now non-negotiable.
Smaller issuers, once scrutinized for weak governance, now face a much higher bar. Board composition and independence are under increased scrutiny, and audit quality and internal controls are subject to more rigorous review. The SEC is closely watching for material weaknesses in controls.
Enhanced Disclosure—No Margin for Error
Recent enforcement actions illustrate the risks of using boilerplate disclosures. Risk factors must be tailored, not generic, with clear explanations for market and business risks. New SEC rules require registrants to disclose material cybersecurity incidents within four business days, with detailed risk management and governance reporting obligations.
Recent Nasdaq Rule Changes Impacting Microcap IPOs
Recent rule changes by Nasdaq have changed the microcap IPO landscape, effectively reducing the market by an estimated 60-70%. The most significant revision centers on the calculation of the Market Value of Unrestricted Publicly Held Shares (MVUPHS) for companies seeking to list on the Nasdaq Capital Market. Under the updated standards, companies must now demonstrate a minimum MVUPHS of $15 million under the Equity Standard or the Market Value of Listed Securities Standard, and $5 million under the Net Income Standard. Shares that were issued and are being registered for resale in connection with the IPO—commonly referred to as “Resale Shares”—are no longer eligible to be counted toward this threshold. Only shares sold in the current offering may be included. This change is intended to ensure that companies listing on Nasdaq have a genuine public float and sufficient liquidity at the time of listing, thereby enhancing investor protection and market integrity. In any event, the practical effect has been to curtail the ability of many microcap issuers to meet the necessary standards for a public listing. The exclusion of Resale Shares from the MVUPHS calculation has made it much more challenging for smaller companies to access the public markets, as many previously relied on these shares to satisfy listing requirements.
Update: Board Diversity Standards
Nasdaq-listed companies are no longer required to maintain minimum diversity thresholds or submit a board diversity matrix. The previous requirements, which required companies to have, or explain the absence of, at least two diverse directors and to file an annual board diversity matrix, have been removed from Nasdaq’s listing standards. As a result, companies considering a public offering or maintaining a Nasdaq listing should be aware that there is currently no obligation to meet specific board diversity quotas or provide related disclosures under Nasdaq rules. That said, companies should continue to monitor the evolving regulatory landscape, as expectations around board composition and governance practices remain a focus for investors and regulators, even without formal diversity mandates.
Enhanced Disclosure—No Margin for Error
Recent enforcement actions illustrate the risks of using boilerplate disclosures. Risk factors must be tailored, not generic, with clear explanations for market and business risks. New SEC rules require registrants to disclose material cybersecurity incidents within four business days, with detailed risk management and governance reporting obligations.
Recent Nasdaq Rule Changes Impacting Microcap IPOs
Recent rule changes by Nasdaq have changed the microcap IPO landscape, effectively reducing the market by an estimated 60-70%. The most significant revision centers on the calculation of the Market Value of Unrestricted Publicly Held Shares (MVUPHS) for companies seeking to list on the Nasdaq Capital Market. Under the updated standards, companies must now demonstrate a minimum MVUPHS of $15 million under the Equity Standard or the Market Value of Listed Securities Standard, and $5 million under the Net Income Standard. Shares that were issued and are being registered for resale in connection with the IPO—commonly referred to as “Resale Shares”—are no longer eligible to be counted toward this threshold. Only shares sold in the current offering may be included. This change is intended to ensure that companies listing on Nasdaq have a genuine public float and sufficient liquidity at the time of listing, thereby enhancing investor protection and market integrity. In any event, the practical effect has been to curtail the ability of many microcap issuers to meet the necessary standards for a public listing. The exclusion of Resale Shares from the MVUPHS calculation has made it much more challenging for smaller companies to access the public markets, as many previously relied on these shares to satisfy listing requirements.
Update: Board Diversity Standards
Nasdaq-listed companies are no longer required to maintain minimum diversity thresholds or submit a board diversity matrix. The previous requirements, which required companies to have, or explain the absence of, at least two diverse directors and to file an annual board diversity matrix, have been removed from Nasdaq’s listing standards. As a result, companies considering a public offering or maintaining a Nasdaq listing should be aware that there is currently no obligation to meet specific board diversity quotas or provide related disclosures under Nasdaq rules. That said, companies should continue to monitor the evolving regulatory landscape, as expectations around board composition and governance practices remain a focus for investors and regulators, even without formal diversity mandates.
- Structuring Your Offering: Options and Obstacles
SPACs and direct listings offer new paths to the public markets but come with new traps. The SEC’s latest rules impose additional requirements on projections in SPAC filings, extend underwriter liability, and demand enhanced disclosure regarding conflicts of interest. This heightens the importance of rigorous due diligence and documentation to meet the “reasonable basis” standard and avoid liability. Direct listings now require greater transparency, including minimum public float and robust investor relations.
- Regulation A+ remains popular for micro-cap issuers, but the SEC has increased its review of marketing materials for accuracy and compliance. PIPE transactions are popular for accessing capital post-IPO but are subject to anti-fraud provisions and require enhanced diligence of investor qualifications.
- Managing Regulatory Risk: Enforcement and Best Practices
Personal liability for gatekeepers is at an all-time high. The SEC is committed to holding bankers, finders, compliance officers, auditors, and registered investment advisors accountable for failures in supervision, diligence, or disclosure. Compliance is no longer just defensive—it is a market differentiator. Companies should train insiders thoroughly, maintain robust cyber protocols, and actively review disclosures before filing.
- Noteworthy Developments on the Horizon
Cross-border offerings face heightened enforcement risk, especially for deals with a U.S. nexus. ESG and green finance remain under scrutiny, with “greenwashing” enforcement actions continuing.
Conclusion and Takeaway StrategiesFor today’s capital raisers and their professional partners, compliance and disclosure are not “one and done” requirements but evolving competitive assets. A pre-emptive mindset—integrating regulatory forecasting, scenario analysis, and continuous improvement—is essential. Early and frequent collaboration with counsel, auditors, and investor relations experts is key to managing regulator and investor expectations. The path to public markets in 2025 demands more diligence, agility, and proactivity than ever before. Those who prioritize these strategies now will be best positioned to raise capital, mitigate risk, and build durable value in a changing world.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.