Q: How can I best use my limited resources to reach the investors that most affect my firm’s valuation?
A: While the potential audience for your firm’s shares is all investors, it is neither practical nor possible to reach them all. Granted, the same information has to be available to all investors, but active marketing of your firm is limited by time and resources. This means you must segment your market and prioritize your efforts.
Most companies today are 70 percent-80 percent owned by institutional investors. Often, within the institutional shareholder base, the 80/20 rule applies: 80 percent of the institutional shares are held by the top 20 percent of shareholders. These large investors should never be disappointed because you failed to regularly communicate with them. A good IR plan should map out minimum requirements for communicating with investors based on how much stock they own, their desire for communications and your resources.
You must also remember the sell side. Many buy-side analysts claim they rarely rely upon sell-side research, yet somebody seems to be paying attention. The sell side has a highly visible platform with a wide scope of customers. Sell-side firms, with their published research, marketing and sales forces can quickly disseminate information about your company, multiplying your communications efforts many times over. Obviously, you want that information to be correct so you need accurate and forthright communications with the sell side.
Q: How can I attract the attention of new investors?
A: A recent study by Rivel Research Group shows that 73 percent of buy-side managers are not receptive to targeting inquiries, which means most investor targeting falls on deaf ears. But that’s all right – because you’re probably already talking to your next group of investors.
Most institutional investors will find you using many sources, including internal screening and research, seeing you at conferences or hearing your conference calls. Following initial contact, they tend to talk to companies multiple times before buying the stock. You must be diligent about responding to inquiries and understanding the investor and its potential. Time and effort should then be applied where there is a good fit between your company, the investment style of the investor and the potential size of investment. It’s vital to direct your limited resources to your most important audience.
