Attracting long term investors to Small Cap companies

Attracting long term investors to Small Cap companies

A key finding in the OTC Small-Cap Survey (June 2017) reinforced the fact that small-cap companies continue to miss out on opportunities to connect with potential investors.

Instead of targeting large institutions, small-caps should focus on attracting their ‘natural’ investors – smaller institutions, family offices and self-directed individuals who are looking to become long-term shareholders. 

According to the survey, CEOs and CFOs spend only 11 percent of their time on investor outreach.

Given today’s competitive financial markets landscape, the ability of small and micro-cap companies to gain exposure and attract a targeted investor base is even more critical. 

The good news is that there are approaches and tactics that can better equip small-cap companies to build credibility and create a more comprehensive investor relations outreach program.

Liquidity is the benchmark to attracting long term investors and building shareholder value.

Many small-cap companies make the common mistake of exclusively targeting institutional investors and ignoring retail.

Small companies that ignore retail investors may alienate a large portion of their natural shareholder base who are a more organic fit and key target for these small-cap companies.

While institutional investors are an important part of a diverse investor base, the truth is companies under $250 million in market cap are 70% owned by individual, self-directed investors.

For companies below $100 million 
in market cap, the percentage of individual, 
self-direct investors jumps to 80%. 

Many small-cap companies are 
fixated on attracting large institutional
investors, yet they do not have enough
shares outstanding and liquidity to meet their
investment criteria. 

Companies need to take 
a hard look at their shares outstanding, liquidity and free float to determine if a large
institution could realistically obtain in large position in the company. Institutions typically require average daily volume of at least 500,000 shares and a market capitalization of $500 million. 

Companies gain interest from investors when they succinctly communicate their company story.

70% of CEOs/CFOs of the small companies surveyed manage their Investor Relations program internally. (Small-Cap Survey June 2017)

Now more than ever, it’s important for the company’s spokesperson to consult with a PR/IR professional to craft an 'elevator pitch' that is exciting, consistent and easily understood.

Companies should get to know their current and potential investors and prepare a coherent story that addresses their unique concerns.

Long- term institutional investors will have very different needs and interests than smaller hedge funds who are more risk-tolerant and have shorter investment horizons.

CEOs need to prioritise shareholder demands. It is easy for a passionate CEO to become hyper focused on the intricacies of the business and technologies and ignore the metrics and financials their shareholders are seeking. CEOs must remind themselves that the Company works for its shareholders, not the other way around.