A critical element in the foundation of any company is a solid investor relations (IR) strategy. Essential to this strategy is a structure that effectively drives IR communications that build and sustain confidence and ensure continuous support.
Often discussions about IR programs are centered around public companies, but a strong IR communications strategy can be equally vital for private companies. It is true that private companies are not subject to the same SEC disclosure rules as public companies, which allows for more liberal operations behind closed doors. But while it may seem advantageous for management teams to be solely accountable to company owners and subject only to basic agreements with shareholders, building a structure with this freedom and greater leeway can be challenging.
Communications with Shareholders
Beginning with a structure that includes some level of reporting, and whether the nature of that information is qualitative or quantitative, maintaining regular communications with shareholders can be highly effective in instilling confidence in a team and its mission.
There are different ways to assess the level of information to provide. One way is to begin by identifying any existing obligations in shareholder agreements. Moving beyond these requirements, reviewing historical communications to date can help to establish, not only commonalities, but also a better understanding of what shareholders are interested in and care about. Comparing these findings to information that can be made readily available is also useful in crafting a foundation for communications.
For content, while financial reporting is informative, transparency into operations with key performance metrics provides more insight into a company’s objectives. Additional color can be added with any milestone updates to the quarter, such as the completion of enrollment in a clinical trial, or a report on where a company is with respect to its corporate goals.
Coupled with determining content, are decisions needed on frequency and means of delivery. Reporting to shareholders on quarterly calls or webcasts would be more consistent with the cadence of public companies. And establishing this practice can be helpful, particularly if a company is on path to go public. However, if timing and logistics are an issue, another option is to email quarterly updates, complemented by an offering of a call with the CEO and/or CFO for any questions. Following these updates with an annual summary can also provide a constructive medium to close the year by highlighting achievements or potential headwinds or announcing company goals and expectations for the coming year.
Communications with Potential Partners
Another focal part of a strong IR communications program is in supporting strategic and fundraising activities. Companies need cash to grow and generating it can be hard. It is challenging to garner support from existing shareholders, especially with longstanding contributors. Having a set communications program, well in advance of any fundraising needs, can help mitigate any surprises during outreach.
Beyond that, however, there is a necessity for consistency in messaging. The fundamental key to content is to make sure that any information presented is directly aligned with all external company communications. Missteps and disjointed messaging can lead to questioning a team and company direction.
With that in mind, as part of an outreach to potential strategic partners and shareholders, decks are commonly used as tools to deliver value propositions of a company. Obviously, the target audience will dictate content, but it is useful to have different versions available, and at a minimum, to be prepared with a non-confidential introductory deck, along with a confidential deck that provides a deeper dive into the business. The goal for content should be to clearly and concisely deliver a company’s vision and strategy. Outside of standard inclusions like total addressable market, as in the case of med tech, providing information on reimbursement dynamics may help to paint a more comprehensive picture of the available opportunity.
If conversations are extended, it is also helpful to share additional information through a secure virtual data room (VDR). A collaborative VDR can be an extremely useful platform to a team, not merely as a resource for sharing, but to house relevant information and have it easily accessible. Depending on the shareholder or potential investor, different levels of access can be controlled and managed. Also beneficial is the capability to audit and track any information being accessed in order to gauge both levels and topics of interest. Creating and maintaining a strong VDR will also be immensely helpful as a company engages in due diligence.
For private companies, incorporating a proper IR strategy for communications is essential. Building a cohesive and trusting relationship with shareholders helps a company to better achieve its goals, and key to this development is consistency. Regardless of whether planned next steps lead to an IPO or an M&A, getting into a regular cadence will help a company to be better prepared for the complexities that arise with this transition.
For more information on IR communications and strategy, contact our team and we would be happy to help.
Ji-Yon Yi, Associate