Smaller companies and the changing face of the private investor
Private investors may be overlooked by large companies, but the small-cap sector can meet their needs in a rapidly-evolving market, writes Amanda Taylor.
For the small-cap company there is a large and often overlooked opportunity through engaging with private investor investors. Building a loyal and supportive private investor base is key to growing a listed company and can gain significance and help to reduce volatility as the company grows.
Private investors (also known as ‘retail’ investors) are becoming a larger and more influential part of the investor ecosystem. Whether they’re planning for their retirement, day-traders or just an everyday person looking to generate additional income, they are an important part of IR that should not be overlooked.
There is a temptation for IROs to place less emphasis on the private investor audience simply because, as an individual, they can’t drive your share price up or down. Although that’s a valid point, the impact of this emerging audience is not evident at an individual level but can be seen in their collective power.
In the past, the private investor audience consisted of individuals with some investment knowledge – someone planning for their retirement, perhaps, or a day trader with a previous career in finance. But the audience is evolving. Although many private investors still fit the former profile, with the ad-vent of online platforms to simplify the investment process and ‘how to’ videos and blogs on just about any aspect of investing, the landscape is shifting. Today’s private investors might include an audience of women trying to generate income during maternity leave or a career break, or the millennials trying to clear their university debt by investing, for example.
This changing face of the private investor means IROs and their companies need to be agile and innovative in their approach towards these audiences. This is where small-cap companies are well positioned to respond and build good relationships with these investors. Compared to most large-cap companies, small-cap businesses are agile and innovative, which is why many investors choose to in-vest in them in the first place. These natural synergies and affinity for creating an open and fluid relationship with their shareholders make them a perfect fit for private investors.
In this time of evolution amongst the investor landscape, it is important for small-cap companies to use their agility to their advantage to stay ahead of the curve.
Make it easy
Private investors seek out different information than institutional investors and in different places. They will head to social media, online forums, investor focused websites and networking events for their information. They may not find the beautifully crafted investor page you’ve prepared on your website or the sponsored research you’ve commissioned. If they aren’t looking for your information in the ‘right’ places, make sure you put your information in the places they are looking.
Whether that’s by monitoring your ticker hashtag on twitter or by replicating your content in the channels they are using – find a way to get accurate information to them.
By doing this and being where they are you have a good understanding of the sentiment within this investor group. This allows you to mitigate any information shared through unregulated sources that may be inaccurate and the root cause of fake news, rumours and speculation that can lead to misinformed decisions and herd mentality that could affect your stock.
Recognise that they are not all the same
As we discussed earlier, within your private investor base you will have some investors who are very experienced and want lots of detailed reports and know their way around a balance sheet. On the other hand, you may also interact with the less well informed investor – so it’s important to ensure what you communicate resonates with these different types of investor. One way to do this is to have different versions of similar information so that you can tailor the content based upon the audience rather than have something that is going to patronise them or go the other way and go completely over their head.
As part of this, you may also want to look into different channels and ways of communicating based upon the diversity within the investor base – repurpose content in multiple forms across multiple channels to have the best chance of getting content to hit the right notes with the right people.
Build a relationship
Gone are the days of the big boss in the ivory tower, untouchable by the masses. Through social media we are now able to get to know influencers – and companies are no different. Build your brand and talk to your investors and potential investors, engage online, attend events and put your best people out there on the ground to meet with investors as much as possible. If this isn’t face to face at events, consider regular pre-recorded video content or blog posts that can help the investors get to know you and build their trust.
We can’t always expect things to go up in a linear fashion – there will always be bad news as well as good. Being transparent and timely in your communication – whatever is happening. If things are not going to plan, bring it to the market’s attention at the earliest possible time – private investors deserve no lesser treatment! With this in mind, an overcautious approach is better and can surprise to the upside. Investors have a long memory and the mis-management of expectations can take a long time to recover from.
With this ‘evolution’ of the private investor audience in mind, there is an opportunity for companies to make the first move. Ignoring this large piece of the puzzle is no longer an option and the companies who choose to turn the challenge into an opportunity and make a considered and consistent approach will reap the benefits.
Amanda Taylor is head of business development at Master Investor.
Published 29 October, 2018