The Evolution Of Investor Relations And How To Access Untapped Capital Markets
It can be easy to boil down the investment research and investor relations (IR) space to nothing more than data analysts and press releases, but like all industries, the IR...
It can be easy to boil down the investment research and investor relations (IR) space to nothing more than data analysts and press releases, but like all industries, the IR space has evolved significantly over the past two decades with the advent of the internet and an increasingly globalized economy. However, many IR firms have failed to evolve along with it, clinging to outdated approaches or only targeting a small subsection of capital sources and leaving trillions of dollars in untapped resources on the table.
Edison Group is an investor relations firm that specializes in transatlantic activity for fast-growing listed and private companies, helping European companies tap into American capital and vice versa. The firm sees an opportunity for both banks and traditional IR firms that have failed to connect these emerging international businesses with the investors and capital that are ready and willing to flow across borders.
We spoke with Rachel Carroll, president and managing partner of Edison Group, about how the IR space has changed, where things stand today, and how the company is aiming to connect promising startups with the precise types of investors that make sense for them.
Q: How do you view the current IR landscape, its evolution, and the industry's ability to help connect businesses with capital?
A: Investor relations as a mechanism to influence the capital markets has gone through tremendous change in recent years, echoing broader changes in financial services and fund management. With ongoing money inflows into passive vehicles, the pool of funds managed by active investors has been shrinking proportionally and there is more intense competition for capital, especially with the more established institutional funds. Over the last twenty years, there has been a migration of intellectual capital from the sell-side to the buy-side, and an ongoing trend to disintermediating the sell-side as a connector of capital, exacerbated by legislation like MiFID2 in Europe.
The impact is especially pronounced for smaller and mid-sized public companies who often will not have complete visibility or influence over all the addressable pools of capital available to them: institutions, private wealth institutions, family offices and retail. They will often be locked into the local market where they went public, given their advisors are not able to access capital in other geographies. It is important for private and public companies to take ownership of their capital markets strategy and be fully cognizant of how to attract and grow a deep and diverse group of shareholders to optimize valuation and fund the business over a protracted life cycle.
Q: Where are the untapped opportunities that the conventional approach isn't targeting?
A: The hardest groups to reach via conventional means are family offices and retail investors en masse. In the United States, we believe there is around $2.5 trillion managed by family offices and $12 trillion managed in the retail investment advisor community. Most banks will focus on the pool of active investors who manage around $3.5 trillion. These are big numbers, but with the amount of new issuance in recent years and competition for investment from active managers is actually increasing. Companies who do not employ a strategy to target this "tail' of investment capital in addition to working with banks and advisors to target the active institutions risk leaving money on the table.
Q: How have these limitations impacted companies' strategies when it comes to raising capital?
A: There is still a huge amount of capital to play for in both the public and private markets. With the amounts of money being made in the private markets, and reinvested, there has been a trend for companies to stay private longer. Early-stage investment rounds have become larger and in 2020 we witnessed well-known public market institutions flexing their considerable capital and expertise to support as early as Series B rounds.
We are an independent advisor focused on supporting private and public companies on diverse capital markets strategies, often across borders, so they can evaluate the pros and cons in parallel. I am just about to set up a series of meetings in Austin, Atlanta, Nashville and on the West Coast to speak to growth companies about accessing European capital for example, in some cases listing first in Europe and using this as a springboard back to a U.S. exchange. The strategies we engage can be diverse but are always underpinned by advising companies to be on the front foot of all available pools of capital in a well-thought-through and executed plan.
Q: What is Edison Group's philosophy toward investment research and the current IR space, and how does it differ from other firms?
A: Edison's IR business has been built alongside one of the largest independent equity research firms in the world, with 60 research analysts writing thematic and stock-specific research across all sectors and over one million research reports downloaded annually. This gives us an inherent advantage in communicating complex science and technology, as well as understanding the unique characteristics investors look for across different sectors.
Investment research is an important tool for sophisticated investors that enable them to do their diligence and support a fair valuation for the company shares. Companies need to be more proactive in today's market to create mindshare and continual touchpoints to engage their audience. We now employ over fifteen different types of investment and educational content including in-depth thematic reports, technology spotlights, expert panels, virtual conferences, CEO interviews, and podcasts. Keeps it interesting! The content is then distributed to diverse stakeholder audiences via all the major financial portals and digital amplification campaigns.
Q: What are the unique value propositions of this model, specifically for international investments?
A: We specialize in a transatlantic service and are often bringing foreign companies to the US for the first time. It is the biggest and broadest capital market in the world, we estimate there is in excess of $9 trillion allocated to non-US equities alone. An incredible opportunity, but often companies do not know where to begin or work with local advisors who cannot navigate the US markets. For the US companies we work with, we find they are often only reaching the tip of the iceberg in terms of addressable capital.
Having a platform that can create a vast array of engaging content with 1.5 million engaged users is a considerable head start, we then overlay with digital amplification strategies to target audiences based on predictive analytics and the traditional elements of IR: CXO speaking and thought leadership opportunities, access to investment banking conferences, non-deal roadshows, media relations and influencer strategies. For IR practitioners seeking to create influence in today's markets, it is certainly more complex, but I personally love how it is fostering more innovation and creative thinking in what may be considered by some a pretty staid industry.
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