Fun Reading: S-1 Statements

I learned a lot of things during the tech bubble of the 1990s. One of the more interesting things was how to read an S-1. An S-1 is the main document that private companies file with the SEC as a precursor to going public. The S-1 is supposed to list every detail about the company that a potential investor would consider relevent when evaluating whether to buy stock in the company. So in these documents, you get all the financials going back several years, lists of all the major stockholders and how much they own, any employment agreements with officers/founders, lists of major agreements the company has with other companies, etc. It’s basically everything about the company. Really interesting stuff to me, because it gave me an idea of what other people in my position (founder of a company) had in terms of employment contracts, how much of the company they had sold to private investors, etc. Stuff that generally you’d never want public. Anyways, I hadn’t read an S-1 in several years, but I saw from John Battelle’s Blog today that Lindows had filed an S-1. Lindows is run by Michael Robertson, who probably doesn’t remember me, but many years ago we both worked at the San Diego Supercomputer Center, and we have some friends in common. Anyways, the S-1 can be viewed here, and it’s pretty interesting. From a cursory reading (this could be wrong, best to verify yourself), Lindows was originally funded with a $5M investment, and has a $10M revolving credit line (debt) with Michael. Michael owns 81.3% of the company and the other officers own an additional 6%. That’s not terribly interesting. Michael funded the company, he owns most of it. What is interesting is Lindows’ revenue. For the year ending December 31, 2003, the most recent information published, they had $2M in revenue. For the year before that they had $63K of revenue. They’ve never had a profit. When eGroups was looking to go public, if I remember correctly, we were told that we needed something like $15-$20M in revenue for the preceeding year before we could go public. And we needed a clear path to profitability. That was during the bubble. When going public, there isn’t necessarily a fixed right or wrong answer to these things. You’re right if you can convince people to buy the stock you’re selling. I am surprised, however, given the financial climate of the last few years, that they would try to go public with that kind of revenue. Of course, just because they filed an S-1 doesn’t mean they will go public, or that they even want to go public. Some companies file an S-1 to make it look like they’re about to go public, when in reality they’re looking to make themselves more attractive as an acquisition. Again, the caveat is that this is based on a quick perusal of the S-1. Read it yourself. It’s not difficult to get past the legalese.