It Ain't Over . . .

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 entrée 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 entrée 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.

Contact Source

CorpHQ, (562) 308-7045,

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This article was originally published in the December 1999 print edition of Entrepreneur with the headline: It Ain't Over . . ..

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