It Ain't Over . . .
Entrepreneurs Steve Crane and Art Aviles Jr., both 40, believe they have an idea that can do what almost no other business has been able to successfully accomplish: corral America's millions of SOHO businesses into a cohesive, yet independent, force to be reckoned with. Their secret is really no secret at all, according to Aviles. "We're hitting SOHO entrepreneurs in the sweet spot: money," he says.
Through their company, CorpHQ, Crane and Aviles have created an online community (http://www.corphq.com) where entrepreneurs bid on jobs, and buy products and services at money-saving group rates. Through CorpHQ's so-called reverse auction, everyone from Fortune 500 companies to entrepreneurs can list jobs, such as business-plan creation, advertising services and research, that SOHO practitioners can bid on individually or together as a team led by a project manager. "The power behind our idea," says co-founder Crane, "is that it uses the Internet to bring together talent in a way that is not otherwise possible."
Although the pair's operation has been focused near CorpHQ's headquarters in Long Beach, California, and recently in New York City, their vision is national, if not global. "Our company is about removing barriers and enabling SOHO entrepreneurs to make connections with suppliers, other entrepreneurs and, most important, new business," says Aviles. "To reach its true potential, we must have a very broad vision."
But the difference separating the visionaries who go down in history from those who don't is often the money to execute the vision. Aviles and Crane eschewed traditional venture capital in favor of a more populist approach: a so-called 504 offering to individual investors that enabled them to raise capital and begin trading on OTC Bulletin Board as COHQ. The pair felt that their financing options would multiply as a public company, a strategy which paid off as CorpHQ raised additional funds during late 1999.
This success notwithstanding, co-founder Crane says that as a public company, CorpHQ now has an enormous task before it in building and maintaining investor relations. "Our success as a public company," he says, "depends on not only how well we do financially, but also how well we market our company and our story to the financial markets."
Crane is 100 percent on the mark. Companies need to market themselves tirelessly to the investment community to consistently find a fresh supply of buyers for their stock. If they don't, sellers quickly outnumber buyers, and the stock price falls. Once a stock is under water, management sometimes becomes so preoccupied with getting it back up, they drive the company into the ground. In the end, being public--the status which was supposed to ensure a long, healthy, and, above all, prosperous existence--kills the company.
Blocking & Tackling
Now that you know how important investor relations are, here's a checklist of things you can use to make sure your life as a public company is a successful one.
- Executive time. You don't sell your deal once--you sell it continuously. And except for large companies, it's the person running the show who does the meeting, greeting and, yes, the selling. Ideally, you should meet with at least one analyst, broker or institutional investor per month. At the very least, you should plan one day per quarter to meet with at least five investors. At CorpHQ, Crane shoulders the investor relations burden. "It's like another full-time job," he says, recalling the many times he's taken 4 a.m. calls from early-bird East Coast investors.
- Publicity. You must leverage your ability to get in front of investors who otherwise would not know you exist. That means using the press, print and electronic media. Publicity is important because the dozen incoming calls from prospective investors who read a story and want to learn more are worth more than 1,000 outgoing cold calls. If you have a PR firm, it needs to focus on getting your company exposure in the investment and business media--and you need to give it the kind of events and milestones it can work with.
For example, Aviles and Crane were able to consummate three partnerships in quick succession--allowing them to distribute news releases to their shareholder base that showed exciting forward progress, and get some favorable press as well. The three deals included a partnership with a franchised provider of business services that gave CorpHQ access to 7,500 locations nationwide, an alliance with a courier services firm, and the acquisition of a financial services firm to provide corporate finance and investment banking services to CorpHQ members and customers.
- Money. Get ready to spend some money. Unfortunately, promoting a company can't be done on contacts alone. You'll need to pay your way into conferences. You might need to pay for a consultant. You'll also spend quite a bit creating investor collateral materials such as fact sheets, annual reports, news releases and article reprints. "All totaled," says Aviles, "our investor information kits cost about $8 each, and we send out a lot of them. But it doesn't stop there, because many times investors want them sent out overnight delivery."
Finding Your Liaison
The real truth about investor relations is that you can't do it alone. Every successful small public company has a broker or several brokers that produce research, provide entrÃ©e to institutional investors and make a market for the company's stock. CorpHQ, because it went public through a smaller offering that was placed by the firm's own principals, does not yet have a sponsor. "At first we didn't need one," says Crane. "But now that we're reaching critical mass, we know that to succeed at investor relations, we must have a relationship with a brokerage firm that can act as our sponsor."
Many firms--because they went public in a way similar to CorpHQ's or because they went public through a conventional IPO and were subsequently orphaned--find themselves in similar circumstances. Here are some of the characteristics of brokerage firms to look for when you're deciding who your partner in the capital markets should be.
Research. Does your would-be brokerage firm provide research coverage? It's very difficult to pull in interest from other quarters without any analytical opinion out there whatsoever. Part two of the test: Does your investment banker do real research? One acid test is whether the broker's earnings estimates are carried by forecast reporters Zack's or First Call, because neither of those organizations will report claims from brokerage firms that write puff pieces. If the broker isn't listed, it's a sign that the Street will not respect your broker's opinion and will ignore its research.
Customer base. Ideally, you want a brokerage firm that caters to institutional as well as individual investors. With two sets of customers, one can function as the second wave of buying after the first gets antsy, which inevitably happens. If you have to choose one over the other, pick a firm that has an individual customer base. Why? Most institutional investors ignore companies with market capitalizations (total shares outstanding times price) of less than $100 million. If that description fits you, and all your broker's customers are institutions, there's very little they can do for you at the end of the day.
Capital. Ask your would-be investment banker how much capital they have. Remember, their ability to step up to the plate in the market and buy your stock when sell orders crop up is, among other factors, a function of how much capital they have. The more they have, the better your investor relations program is likely to be.
Branches. From an investor-relations perspective, brokers with multiple branches are better than centralized operations. With lots of branches, there's more opportunity to make lunch or breakfast presentations to groups of brokers and win new friends. In addition, those brokers can introduce you to brokers at other firms, or perhaps even institutions in their immediate region, that you would otherwise never get to.
Contacts. If your investment banking firm is indeed your entrÃ©e to the capital markets, you want to make sure it's well-connected. Ask the head honcho for a list of people the firm can get you in front of in every metropolitan area in the country. They might take exception to this, but when you say "I want to support the deal in the market and want to meet as many people as possible," they'll have little choice but to respond.
The investment banker cannot do it alone, though. In truth, the company has to perform to merit the attention and the risk capital of investors. Says Aviles, "The most important part of our investor relations plan is to show ever-increasing earnings. If we can do that and make sure the world knows about it, things will work out just fine."
David R. Evanson's newest book about raising capital is called Where to Go When the Bank Says No: Alternatives for Financing Your Business (Bloomberg Press). Call (800) 233-4830 for ordering information. Art Beroff, a principal of Beroff Associates in Howard Beach, New York, helps companies raise capital and go public and is a member of the National Advisory Committee for the SBA.
CorpHQ, (562) 308-7045, http://www.corphq.com