Written by Part 5 of 5, How to Have a Successful IPO and Beyond
Once a company goes public, it becomes an open book to any and all, meaning the roster of many stakeholders will start to reach far beyond long-term colleagues and collaborators. Investor relations should act like a gatekeeper, ensuring that the company communicates effectively with the finance and accounting community and beyond by deftly integrating information from finance, marketing and legal teams. Keep the company message consistent and on point.
A strong IR team, backed by your company’s financial metrics that provide a clear picture of the business, needs an infrastructure that can report on those metrics. This requires closing any gaps and building a visible and transparent reporting process long before pursuing an IPO. We’ve worked closely with the following external IR teams in the past with good results. Make sure you engage them long before you file your S-1.
I’ve had much success in the past with senior folks at ICR and The Blue Shirt Group.
Navigating Investor Relations: From Earnings Calls to CFO Leadership
In the intricate landscape of public companies, effective investor relations serve as the linchpin connecting a company with its stakeholders, especially institutional investors. What you say, how you say it, and who is saying it is so important for investors looking at your company’s metrics and future potential while comparing you to a peer group of a similar-sized cohort of public company comps.
The multifaceted role of I.R. encompasses nurturing relationships, driving excitement, enhancing trading activity, and diversifying the investor base. Investor relations play a vital part in various aspects, including earnings calls and the pivotal role of the Chief Financial Officer i.e. CFO and CMO in delivering a compelling investment thesis while managing short-term expectations.
Role of the CFO: Building Investor Trust and Leading IR
The CFO is central to successful earnings calls, whose leadership is pivotal in conveying the investment thesis and managing expectations adeptly.
Articulating the Investment Thesis: The CFO serves as the spokesperson for the company’s financial performance and growth strategy during earnings calls. The CFO’s communication skills, financial acumen, and strategic outlook come into play in presenting a compelling investment thesis. Through this, the CFO instils confidence and generates investor interest.
Balancing Long-Term Vision and Short-Term Goals: Earnings calls demand a delicate balance between discussing the company’s long-term strategic vision and managing expectations for immediate results. The CFO’s role is crucial in communicating the company’s growth trajectory while offering a realistic perspective on near-term challenges and opportunities.
Transparency and Credibility: Transparency from the CFO enhances the company’s credibility. Clear explanations of financial results, metrics, and decisions foster trust among investors and analysts, bolstering the reputation of the management team.
Preparing for Earnings Calls
Earnings calls are pivotal moments for public companies to showcase financial results, and strategic initiatives, and engage with investors and analysts. Behind the scenes, investor relations professionals work diligently to ensure that these calls are not only informative but also transparent and well-prepared.
The preparation process involves careful steps:
Be Aware of the Relative Issues beforehand
Data Collection and Analysis: Investor relations teams collaborate across departments, compiling accurate financial data, key performance indicators, operational highlights, and market trends. This amalgamation of information is vital to present a comprehensive and coherent overview of the company’s performance.
Crafting the Message: Collaborating closely with the executive team, investor relations professionals craft a cohesive and consistent message. This message aligns with the company’s strategic goals, incorporating financial results, achievements, milestones, and initiatives that project the company’s growth trajectory.
Managing Expectations: Effective management of investor expectations is a fine art. Investor relations teams ensure that the message strikes a balance between optimism about long-term vision and realism regarding near-term challenges. This mitigates potential overinflated expectations that could lead to adverse market reactions. And don’t forget, expectations can creep higher for the outlying quarters as analysts extrapolate your winning current quarter, so get ahead of these things.
Q&A Preparation: Anticipating the inquiries analysts and investors might raise, investor relations professionals prepare thorough responses. These responses address potential questions about financial metrics, market dynamics, and company strategy. This preparation equips executives to provide accurate and coherent answers during the Q&A session, enhancing the overall credibility of the call.
Answer the Question during the Q&A Session
Comparative Net dollar retention rates, sequential or YoY changes in the rate of RPO growth, expansion rates with large customers, and impact of the macro, are all regular questions that will come up during the Q&A section. The exactness of the information provides investors with confidence while dodging the issue related to deal pushouts, and delays in getting POs signed, which can let doubt seep in.
Once the call is over do a debrief with the team. What is being unfairly over or under-emphasized? Are the investors focusing on the wrong issues? Are there factors limiting your stock’s valuation relative to a competitor for one reason or another? Proactively addressing these concerns can drive the stock performance and be sure to steer the conversation on subsequent calls stating with confidence that specific concerns have been addressed and it’s back to execution mode for the company.
There’s So Much Money Out There for You
There is so much capital out there. A secondary, convertible debt, debt capital, it’s all fuel for you to grow the business and become a dominant franchise in your market, but first, you need to learn about debt. This influx of capital allows you to pursue growth opportunities that were previously out of reach and you can sleep with Ease of adding debt.
Work with the exec team to communicate the financial performance clearly, and ensure that you consistently meet or exceed their expectations. Investors love consistency and investors do not like surprises (the unexpected kind). Be shareholder-friendly and align the incentives internally with your external shareholders. This involves not only managing the finances prudently but also adhering to the highest standards of corporate governance and ethical conduct.
Looking Ahead
As the company scales, consider adding an investor day, expanding the number of non-deal roadshows, and selecting the right speakers for the right conferences all while proactively diversifying your investor base. And one last thing, it’s super important to think several quarters ahead so always be mindful of how expectations for your outlying quarters can change as you report your earnings. Under-promise and Over-deliver!
