What is the Nasdaq Capital Market
The Nasdaq Capital Market is one of Nasdaq's U.S. market tiers meant for early stage companies that have relatively low levels of market capitalization. Listing requirements for companies on the Nasdaq Capital Market are less stringent than for other Nasdaq market tiers, which focus on larger companies with higher market capitalizations. The Nasdaq Capital Market was originally known as the Nasdaq SmallCap Market, reflecting its role of primarily listing small cap companies. In 2005, the Nasdaq SmallCap Market was renamed the Nasdaq Capital Market in order to reflect its core function of raising capital for early stage businesses rather than focussing on the market cap of these businesses.
BREAKING DOWN Nasdaq Capital Market
The Nasdaq Capital Market is meant to be an easy entrance for smaller companies to capitalize and grow through a Nasdaq listing. Although the initial listing requirements are relaxed for companies, the corporate governance required to maintain a Nasdaq listing is the same across all tiers. This means Nasdaq Capital Market companies must have a code of conduct, an audit committee, independent directors and so on.
Listing Requirements for the Nasdaq Capital Market
The Nasdaq Capital Market makes it easier for early stage companies to get listed, especially when compared to other senior exchanges with more onerous requirements. In order to list initially on the Nasdaq Capital Market, companies must meet all of the criteria under at least one of three listing standards — the equity standard, the market value of listed securities standard or the total assets/total revenue standard.
All the standards share some requirements such as 1 million publicly held shares, 300 shareholders and 3 market makers. However, they differ in important ways. The equity standard requires stockholder equity of $5 million, where the other two require only $4 million, and it also requires an operating history of two years, while the other two do not require an operating history. The market value of listed securities standard requires, not surprisingly, a market value of listed securities of $50 million and a market value of publicly held shares of $15 million. The net income standard is the only one requiring a net income, $750,000 in the latest fiscal year or in two of the last three years, but has the lowest requirement for market value of publicly held shares at $5 million.
Although companies can pick the standard that best matches, the overall standard and the required governance is more stringent than some early phase capital markets. Because of the costs involved with meeting these standards, companies listing on the Nasdaq Capital Market often handily exceed the minimum requirements before they decide to list. Other early phase capital markets like AIM have positioned themselves as lighter regulation destinations to provide bridge listings for companies as they grow large enough for the Nasdaq.