If you need to attract capital, you need investor relations. It is as simple as that. Whether you are a privately owned company trying to raise capital, are preparing for an IPO or are already publicly listed and need more investment, properly targeted, engaged and managed investors are key to success. Once you decide it is time to raise money, you can get the following five benefits from having a well-tailored Investor Relations (IR) strategy and a dedicated IR manager or an IR team:
- Investor targeting. You do not just pitch to anyone who comes across. Preparing an IR strategy helps your company understand the different types of investors out there, their values and goals. This means you know exactly which investors you should approach and what proposals they will find attractive. Effective IR saves you time and effort while achieving results.
- Access to capital and increased liquidity. IR can create positive reputation for the company in the market, ensuring recognition and credibility in the eyes of investors. Building a healthy relationship with financial community can bring in more capital. Investors see a company as a worthwhile investment opportunity if they can expect financial security. A strong relationship and a regular flow of information about the company and its affairs makes an investor feel more secure and certain when choosing investment options. Greater public awareness about the company can also boost the frequency of its shares trading and hence provide a liquidity injection.
- Fair valuation. Once you secure investor interest you want them to value your company for what it is really worth. If there are any gaps in valuation effective IR will help to bridge them. Your IR manager will help you better understand what the value drivers are, how investors view your company and what parts of your business are least understood. With this information you can adjust your activities and/or communications so investors really understand and fairly appreciate the company’s story.
- Analyst coverage. You may be a great storyteller but investors like to double check. Usually, their go-to sources are investment analysts who provide their expert opinions on a company’s value. IR strategy includes enhanced dialogue with analysts that focuses on identifying gaps in perspectives on the company’s fundamentals and opportunities. To be effective the dialogue should be fact-based and well-supported. Better communication with analysts is certain to bring in more interested investors. However, various jurisdictions have restrictions on material disclosure and an experienced IR manager must know where the no-cross line lies.
- Increased visibility. Effective investor relations not only help investors make a positive decision about providing capital but also help the company generally do better on the market. Increased credibility, positive recognition and fair valuation make the company more attractive for prospective employees and help grow sales.
Absence of investor relations leads to a situation when few investors have enough information and knowledge to buy in your company’s story. Your stocks then trade undervalued and fewer opportunities arise to bring around more capital at a fair price.
To avoid this many companies hire investor relations specialists. Depending on your goals and expected workload you have several options varying from employing an IR manager or creating a separate IR department to outsourcing your investor management to a PR/IR company.
What do IR people do?
IR professionals manage communication between a company’s corporate management and its investors. Specific duties may vary but usually include releasing information, handling inquiries, coordinating meetings with investors and analysts, providing management with feedback from the market and managing crises. It may sound just like what public or customer relations departments do. But there is a difference. Investor relations focus solely on financial community: investors, shareholders, relevant government organizations, analysts and overall financial community and provide them with information tailored to their needs.
The IR professionals representing your company are a reliable and easily accessible source of information on the company for the financial community. The questions asked are many and include operational, financial, strategic… Here is what you can normally expect your IR person to do to ensure investors are well-informed and the company is on the right track:
- Provide regular information outflow.
IR manager makes sure the financial community regularly hears about the company, its strategy, operations and financial well-being. At the least, this information is always up-to-date on the company’s website and quarterly/annual reports are published on time and sent out to current and potential investors as well as equity research analysts. Ideally, the IR manager/team also proactively informs the financial community through press releases, shareholder meetings, off and on-the-record meetings with research analysts, etc.
In fact, a big chunk of IR’s work is about building a good relationship with investment analysts. They are the people whose opinions about the company matter to investors. Their expectations should be managed and their thirst for information about the company always satisfied.
Regular flows of information make the company seem more trustworthy and, hence, more attractive to investors. Here IR works in close cooperation with the public relations team to align messaging and any public communication on the company’s financial fundamentals, strategy and business model. IR also advises PR team on what is and is not acceptable legally. For example, during quiet periods it can be illegal to discuss certain aspects of the company’s performance. The IR also ensures the company complies with all legal requirements on financial disclosure.
- Inform management on Street trends.
It is not only investors who need to be well-informed. It is a two-way street. The company’s management also needs to know how investors and analysts view the company. IR in this case acts as the voice of the investment community.
IR’s job is to ensure the management is aware of investor concerns and addresses them quickly and effectively. IR also identifies misconceptions in the views of investors and analysts and suggests how to tailor activities and messaging accordingly. Bringing the investor perspective to discussions about strategy, IR helps the management to understand the street feedback and suggests how to incorporate it.
In times of crises, IR ensures that investors’ interests are not lost in the avalanche of other problems. It advises the management with the aim of preserving relationships with investors and mitigating drops in share prices.
- Moderate investor communications.
Companies’ regularly receive many requests from investors, analysts and others in the financial community. CEOs and CFOs have many tasks and responsibilities on their plates so it is important to use their time effectively and engage them only when really needed. It is the IR’s responsibility to filter the requests and moderate the management’s communication with investor so that they are still accessible and keep in touch with the street but are not overwhelmed by non-essential communication which could have been managed by the company’s departments.
IR also supports the CEO and CFO during road shows by coordinating the events and by following up on investors’ inquiries for qualitative and quantitative information about the company (see “Provide regular information outflow”). Bringing structure to the management’s communication with the financial community, IR also encourages the CEO and CFO to get out on non-deal roadshows to be proactively in touch with investors and analysts.
- Communicate changes.
Most investors like stability. Therefore, if a company introduces any changes to its corporate strategy it must provide context and explanations to compensate the feeling of uncertainty. IR is essential in communicating the change thoroughly, realistically and with details about motivations, goals and metrics of success. Investors will not panic and the company’s value will not decrease if the investors and investment analysts understand why the decision was made, what was the thought process behind it, what is the expected timeline of the shift and how to measure progress against the plan. In times of change, IR constantly communicates with the financial community, releases information and answers any queued-up questions to ensure everyone understands what is happening and has realistic expectations about the future.
- Manage bad news disclosure.
Sometimes a company has to communicate bad news to the outside world. If done incorrectly it may mean immediate capital flight and less capital in the future. This is when IR strategy and IR professionals are crucial to effective crisis management. IR ensures the management does not underestimate the importance of transparency and honesty in communication of tough messages to investors. Explaining what had happened, why it happened and what the company is doing about it is much more effective than just saying there was a problem.
IR manager helps tailor clear succinct messages and makes sure they are coherent and consistent across the organization. It is not only about communication with investors but also about what the PR team says to the media, what is communicated to the employees and what sales and other business departments say to customers and vendors. It takes a great deal of coordination and proactive work with stakeholders. Honest detailed and well-managed communication helps build investors’ confidence that when a problem arises the company’s leadership knows how to get the business back on track.
It must be clear by now that any company that seeks external capital should have IR. There are whole books on how to build strong IR but here are two tips you can start using from day one.
How to build strong IR?
1) People make the difference.
Ideally an IR professional you are looking for will have a mix of financial and communications knowledge and experience. This person will communicate the company’s financial fundamentals, corporate strategy and operations to investors and be in charge of your annual reporting, so it is essential that they know the difference between bonds and shares and the likes of the business world. An IR manager should be able to understand financial reports, analyze and visualize data. Having deep knowledge of the company and industry is also increasingly important.
At the same time, investor relations is all about relationship-building. So, the IR person must be an excellent communicator with exceptional people skills. Genuinely liking talking to people is key as there is a lot of meetings and talking involved.
An IR professional is also a creative who chooses the right photo for a report’s front cover, proposes a theme for an investor day or signs off on a presentation for a roadshow or a video for the website. Some experience with creative programs suites and management of visual content is a must.
2) Structure does too
Once you have found the great IR people you want them at the top table regularly. The IR manager must have easy access to the management and be present at all important discussions that may affect the way the company operates. Only then you will genuinely have a two-way communication with investors.
Interdepartmental connectivity is vital for successful IR practice. IR is nothing without the information and the insights it gets from other departments: accounting and finance, treasury, planning and budgeting, strategy, sales and operations, legal and tax, risk and compliance, corporate communications and marketing. Information exchange and interdepartmental cooperation are pillars for strong IR.
Whether your company is preparing for an IPO or plans to raise additional capital in the near future, we can help you build or strengthen your IR to meet your goals. Contact us at 416-230-6454.