Managing Investor Relations for Your Company
When you have investors, it is important to have cordial relations with them. This article will provide you with an 1) introduction, 2) importance of investor relations, 3) how to manage your investor relations, 4) ways to improve investor relations, and 5) how social media has revolutionized investor relations.
Investor relations refer to the conversation between the company and the investors. Even though the conversation is regulated and the information disclosed is voluntary, the conversation is an important element in stock market operations. Investor relations can take many forms, from the annual reports or the website updates to investor meetings and new release publications. A common feature in the types of communication that the company takes part in is that they inform the investors about the latest events taking place in company. They explain the financial performance, how the company is operating and the future prospects of the company.
The conversation is by no means one-sided. The investors do have the opportunity to give feedback to the company and express their views. Listening to the investors makes the company better at managing its investor relations and also at implementing suggested changes.
For companies, the process of handling investor relations starts before the IPO phase. The process begins when companies are looking for initial investment via display of their marketability. And when the initial investment has been accepted the active management of investor relations begins.
IMPORTANCE OF INVESTOR RELATIONS
When managing investor relations, there are key points that companies should take into account. A company should try and know its investors, of course knowing each and every investor personally is quite a difficult and daunting task, but knowing their motives for investing is important. At the basic level companies should know whether investors are searching for capital gains or a steady income. Going deeper, they should determine the risk tolerance of the investors.
The investors that companies should look out for are the large institutional investors that bring in a steady cash flow. It is these investors that will bring in substantial capital when a search for more capital begins and it is the institutional investors that will make the company look like a more attractive investment option to other potential investors. But private investors are not to be ignored by any means, even if they bring in relatively small amounts of capital; the diversity of their investment objectives provides the company with some much needed quick liquidity. This is because private investors usually purchase in small quantities resulting in quick surges of liquidity.
Access to Capital
The importance of investor relations stems from the fact that it can generate recognition and credibility for the company in the market, making it more attractive in the eyes of the investors and thus bringing in more capital. When a company develops a healthy relationship with the investor community it creates for itself increased access to capital. The community of investors looks at the company as a worthwhile investment opportunity when it gives back its investors- not just in profit but also in financial security and information.
Another attractive outcome of investor relations that companies aim for is liquidity. Through management of investor relations, the company continually updates the public on the profile of the company and in doing so, creates awareness. This leads to the frequency of shares trading to increase and provide the company with an injection of liquidity.
Companies also aim for fair valuation of their stock, and try and maintain a healthy value through the management of expectations that the investors might have regarding the company. Efficient communication with the investment community will let the company convey its details and strategy which it plans to employ in the future, giving the investors ample information to value the stock at its fair market value.
The purpose of investor relations is not only to inform the investors about the happenings of the company but it is also used to help the company itself. Not only do the positive recognition and increased credibility bring in investors they also aid in the operations of the company; the more attractive a company seems the easier it will be to find good employees. It will also help sales and lead to better market relations.
In the absence of communication between investors and the company, there may be negative consequences. Company management that does not communicate with its investors and the public creates an environment in which a few investors with more knowledge can hold a competitive share of the company and could buy shares from other investors at advantageous prices. Apart from the aggressive investors, the lack of investor management also reduces probable opportunities that may arise bringing around less capital and leading to unfair stock valuation.
HOW TO MANAGE YOUR INVESTOR RELATIONS?
Simply by practicing investor relations, management does not give the company an advantage. There is the added process of how to manage the relationship and numerous other external factors that affect how the company will be perceived. For example, like the condition of the economy.
Talking about how to manage investors, the company needs to identify what type of investors it is managing. Companies usually have a mix of private investors and institutional investors that share their capital, so the difference in classification also means difference in managing.
Institutional investors can be described as the most important investors. They bring in large amounts of capital and hold a large share of the company. The finances they bring in to the company are long-term; this means that they form a structured opinion about the company before investing and decide whether the company is a sufficient prospect for investment or not.
The long-term nature of their investment requires management to use their time and space to execute their development strategies and build up plans for the future in order to make the company seem like an attractive investment choice. The achievements and future proposals of the company should be actively and efficiently communicated with the investment community to attract the institutional investors.
Much like the idea of diversifying your investments, companies should carry the idea to diversify investors. Even though typically a majority of capital will be held by institutional investors, private investors carry an important purpose for the company.
Some of the motivations for private investors include tax efficiencies, an income aspect, capital gains opportunities etc. Their importance stems from their purchase of relatively small portions of company capital. Because they buy small portions, private investors provide the company with some much needed liquidity. In order to make the company more attractive to private investors companies should pay attention to the private investors’ needs. If the majority of private investors finance the capital to earn income, then the company should bring to light their dividend policy; if private investors want capital gains then the company should communicate its growth in value over different time periods, both long-term and short-term. Communicating to the private investors’ demands will attract them to the company and thus potentially benefit both parties in the process.
WAYS TO IMPROVE INVESTOR RELATIONS
Since we have established the importance of managing investor relations for companies, now we look at ways to improve its impact on investors and companies.
Encourage the Whole Board to get Involved
Get the company board involved. This will make the management of investor relations a major decision for the company. Also the involvement of board members in investor relationship decisions will mean that the decision is taken seriously and is a part of the company agenda.
Explain to Investors the Dynamics of Your Market
This idea of improving investor relations shows regard of how well the company knows the market it is operating in. When companies show their knowledge of how their respective markets work and how they can benefit from the markets, the investors gain confidence in the company. IR magazine editor Janet Dignan stated that investors enjoy talking to people who can talk about their company as well as the wider market.
Meet Your Performance Targets
Other than the communicative improvements that companies can handle, there is an operational objective that companies need to tend to. Companies, in order to improve investor relations, should not miss their targets. When companies miss their targets it really undermines any other efforts they put in to improve investor relations; it makes the company seem unstable. And the targets set do not have to be financial only; any social or environmental targets set should also be accomplished to improve investor relations.
Attract More Analyst Coverage
Investors nowadays are relying on analysts to help them make better investment decisions. So to improve relations with the investors, companies need to employ the services of analysts to show the value of their company. This will improve the company-investor relationship as expert opinion states that investors will trust more than that of the company itself.
Provide a Regular Flow of Information
As important as the content of company publications and updates is, it is also important for companies to push out regular flows of information. When companies disclose regular information it keeps the investors interested in your company, making it seem more desirable as an investment opportunity. If a company does not regularly disclose information, then investors lose trust in the company.
Target Those Investors That Matter the Most
Previously we discussed the classifications of private and institutional investors and how managing relations with each classification was different. In order to achieve better investor relations companies need to decide which of the investors they need to cater to. If they choose to prioritize institutional investors then information disclosed should mainly cater to their requirements and vice versa.
Hold a Road Show
A company meeting with their potential and current investors has become a part of the corporate environment. The direct interaction between company officials and the investor community is appreciated and positively affects how the corporation is perceived. Companies are representing themselves at financial centres across the world in order to seek potential investors.
HOW SOCIAL MEDIA HAS REVOLUTIONISED INVESTOR RELATIONS
In the global business environment, social media advertising is increasing, but social media related to investor relations is still in its infant state. Most companies use their social media to disclose information regarding them which is unrelated to investor perceptions. Current use of social media by companies is wasting a valuable resource which can lead to quick and effective communication between companies and potential investors.
The popularity of social media websites has skyrocketed and has given companies a platform on which they can instantly and directly communicate with their current or potential customers. Social networking websites have also become significant determinants in investor relations for companies. Following are some of the ways different social media sites can be effectively used to improve investor relations.
The use of Twitter as a social media tool by companies provides a platform on which relevant information can be shared with people who are genuinely interested. The people who follow an official company account will be interested in what the company has to say about their current or potential future investments. Efficient ways that companies can use Twitter to improve investor relations is to create a StockTwits account so that investors can have a condensed version of investor and company communications taking place. They can also live tweet the highlights of conferences and annual meetings.
For a social media website with a more professional setting, companies can update themselves on LinkedIn. It allows the company to promote itself in the industry and expand its reach. Some of the ways that it can be used to the benefit of the company are, by creating a dedicated investor relations page, improving its SEO via use of keywords, promoting company products and services. The website is also used as an efficient way to organize contacts and discuss relevant topics with groups.
Another social media website with a professional user base is SlideShare. This website like the rest can be used to increase exposure on the internet and the provision to upload investor presentations and corporate slides provides an efficient channel to companies. Companies can also share updates to average investors.
YouTube can act as a good complementary social media application. It can help the company expand itself in the online environment and make the company more visible on search engines. The addition of multiple tags on YouTube videos can help companies take advantage of Search Engine Optimization and visual presentation in the form of video can have a greater impact than text on investor decisions.
This globally popular social media website has the potential to act as a second online hub for companies apart from their own websites. It will be in search of convenience that investors will demand company information on Facebook. And to provide this service to investors, companies should maintain investor relation pages on Facebook that can provide information links and updates via the official company website. It will also be helpful for investors if they are given live feeds to stock information and charts. They should also communicate with investors on a regular basis.
Investor Relations App
The theIRApp is an iOS and Android app that allows entrepreneurs to stay connected with investors. It allows them to share latest events, share prices, presentations, financial highlights and press releases with investors on the go. This allows investors to stay updated, with minimal work from the company’s side.
Social media has integrated itself within the fast paced world of information and is not going away any time soon, so company involvement in social media is an efficient and cost effective way to get in touch with investors both current and potential.