The internet. It’s certainly the industry of the hour – even, dare I say it, of the millennium. According to Internet.com’s Internet Stock Report, 196 new internet IPOs hit the market in 1999 in the US, making it one of the fastest growing fields for investor relations.
Constance Melrose had been working at Merrill Lynch – in the treasury and investor relations departments – for eight years when, in 1995, she spun off her own business consulting for Merrill’s IPO clients. After listening to a talk given by Cisco Systems, Melrose saw the proverbial light. ‘I understood what wired solutions meant,’ she says. ‘It was very karmic.’ Months later she joined EarthWeb Inc, also a business-to-business concern, to become its director of investor relations.
Routes into internet investor relations are largely similar to those into other areas of IR, but there are some differences. According to Joni Hanson, director of investor relations for InfoSpace.com, the most important thing for an investor relations person working in internet space is to either have some kind of marketing or public relations/ communications background. ‘In addition to the numbers, which you should know, you need to know the strategy of the company because that is really what you are selling right now.’
In addition to the requirements of being a good communicator, Melrose notes, ‘It may now be easier to get an in-house internet investor relations job if you have agency experience because there is such a shortage of people.’
Another common route into internet investor relations is to begin in the finance department. ‘Typically there is someone inside on the finance side who has been very involved in taking the company public – and usually has a wealth of knowledge of the company. That is another good way into the investor relations role,’ says Melrose. In lean internet companies, it is often the CFO who starts out handling investor relations, until the company grows big enough to be able to justify creating a separate IR job.
Reaping rewards
For almost everybody involved, it is the promise of the future that is most rewarding. That’s not only true of the financial rewards that employees of successful dot-coms are destined to reap, but also of the more ephemeral ones.
‘Companies are the stewards of the future,’ says Melrose. One part of her motivation is knowing that she can make a real difference by teaching a young, newly public company about that concept of stewardship. ‘The concept of stewardship of assets is extremely important. Other people own your company now; it’s not just yours. So if you have a lot of IR experience and come from that position of considering stewardship important, that is a real contribution you can make,’ she says.
Though the benefits of working in the internet space are many, it is not for everybody. By all accounts it is a hectic world which may not be suitable for somebody searching for a pre-retirement post. In addition to being financially astute and an excellent communicator, one must be a good listener.
‘You can learn from questions and get a tremendous amount of information about your company, your competitive position and your market position,’ says Melrose. One must also be open-minded and flexible, because the situation in an internet company can change so quickly.
If you are considering working in internet investor relations, Melrose suggests several questions to ask yourself. First, are you willing to do everything yourself? That includes stuffing kits if you have to, because internet companies are lean. Second, how well do you deal with a lack of closure? This idea goes hand-in-hand with the rapidity of change. Can you set priorities and be satisfied with only completing the top five on the list every day? Keep in mind the idea that perfection is often the enemy of the good.
‘It’s a wonderful growth experience to really learn that,’ adds Melrose, ‘and working in an internet company provides opportunities to grow on all sorts of levels.’ Third, if you like the traditional command and control system of many companies, then think carefully, because most internet firms are not that way. ‘Negotiation and balancing are what you need to be able to do. If you want to expand in that direction it’s a great place to do it,’ says Melrose.
Growing pains
Perhaps one of the biggest challenges in internet investor relations is learning to cope with the unsettling elements of growth. For lesser-known companies it is the challenge of getting mindshare from busy analysts and portfolio managers. For others, the problem is having to adjust quickly to extreme levels of visibility and analyst coverage.
Take the example of eBay Inc. Its vice president of finance Rajiv Dutta also handles IR. ‘You’re catapulted onto a very public stage before the company has a chance to really grow,’ he declares. ‘You may not have the maturity within the organization to deal with issues and sometimes crises, yet you face the same kind of visibility as a company that’s been at it for hundreds of years.’
In addition to the harsh media spotlight, analyst coverage can grow exponentially within a year. Although eBay has only been public for a year, it already has 26 sell-side analysts publishing research about it. Count in the buy-side analysts and individual investors and you have an enormous number of people that need to be spoken to. ‘The audience you have to deal with grows incredibly fast and you have to be able to scale to that,’ says Dutta.
Yahoo’s director of investor relations Andrea Klipfel joined the company in March 1997 to start the investor relations department from the ground up. Back then Yahoo had about ten analysts covering the company and 30,000 investors. Now there are 29 analysts and 330,000 investors. Her approach to dealing with the huge investor interest began by putting together the IR web site. Indeed, today it is among the most comprehensive, including basics like annual reports, FAQs, financial conference dates, analyst coverage, as well as premium features like downloadable conference calls. ‘The IR web site was a key focus for us in eliminating selective disclosure and leveling the playing field for the individual investor,’ says Klipfel. ‘And it allows us to get information out to folks 24-7.’
Another key element of her strategy was to maximize management exposure while minimizing strain. They achieved this by attending numerous conferences each year and stacking those conferences with one-on-one interviews with potential large investors. ‘I was able to garner from the web site and financial conferences a lot of leverage in terms of getting the story out without having to enlist a large number of resources on this end,’ explains Klipfel.
Audience response
Keeping in contact with 29 analysts seems particularly strenuous. But according to Klipfel, they’re not as high-maintenance as you might think. Even for professionals, the investor relations web page makes a lot of the company information readily available. ‘So the burden is less on us to keep in constant contact than it is on them to occasionally check in with us,’ she says.
In addition to analysts and individual investors, one of the most important constituencies the internet company has to deal with is that of the employee shareholder. This is typically more important in the internet space than in other industries because internet companies are well known for offering lower salaries than many non-dot-coms but much sweeter equity packages. Thus, more so than other industries, insiders have a huge stake in the success of the company. Moreover, for dot-com employees, it is not only their personal finances that are at stake but also their jobs.
‘You cannot underestimate the impact of a fluctuating stock price on employee morale,’ says eBay’s Dutta. ‘It’s very different from other sectors in terms of volatility when you can have 15-20 percent swings in one day.’ In order to facilitate good internal communication, eBay is scrupulous about treating individuals within the company with the same level of respect as the audiences on the outside. One way they do that is by organizing listening stations around the building so people can congregate and hear the questions being asked of their senior management by analysts and investors.
With all the benefits and challenges of doing investor relations for internet companies, one happy consequence of the internet revolution is that it has undoubtedly raised the profile of investor relations in general. According to Yahoo’s Klipfel, internet companies realize the importance of investor relations from the mere fact that there is so much visibility for the entire industry. ‘That makes it even more important to make sure the company message is heard correctly and heard above the noise,’ says Klipfel.
