The Eternal Quest: The
Search by Small Companies for Effective Investor Relations
There are 21,000 publicly traded companies in North America, each with its own approach to investor relations (IR). To rise above the crowd, a company needs an effective IR strategy that ensures that shareholder value is recognized.
Smallcap companies face many challenges in getting their story across to the investment community. It is difficult for them to get attention from the financial media and almost impossible to obtain the kind of analyst coverage needed to attract institutional investors. These problems are compounded by the fact that many lack the in-house resources and expertise needed to implement their own IR programs. They are forced to hire outside consultants to fill the breach. In the past, the larger IR firms did not pay them much attention, but that has changed.
Due to the market decline and volatility over the past two years, companies of all sizes have slashed their IR budgets. As a result, IR consultants have become increasingly hungry and have turned their attention to smallcap companies they would normally ignore. These companies are being bombarded with marketing inquiries from all types of IR consultants promising to build the number of shareholders, improve liquidity and increase share value. Can these firms deliver on their promises? Often, the answer is no.
Let's face it, there are a lot of fly-by-night operations out there. Even the good IR firms are finding it difficult to be effective under current market conditions. They are more than willing to take a company's cash or stock, but then are unable to produce any substantive net benefit for the company. This is especially true for companies listed on the OTCBB and NQB (i.e., Pink Sheets) exchanges.
A well executed IR program can pay off for both the company and its investors, boosting share value, liquidity and price to earnings ratio while expanding a company's access to capital. By helping a company build its shareholder base and holding onto them for the long term, effective investor relations can also decrease volatility and boost a company's overall image. Therefore choosing the right IR consultant is one of the most important decisions a company will make. So, what should you look for in an IR firm?
Finding the right match with an IR firm will pay off in time, money and business performance. Here are some qualities to look for:
Don't know where to go to start your quest for an effective investor relations partner? Instead of just flipping through the Yellow Pages, you may want to check the membership lists of professional organizations, such as The National Investor Relations Institute (www.niri.org), or use a referral service, such as IR Select (www.irselect.com), that focuses on helping smallcap companies find the IR service providers they need. Both avenues are a good way to avoid those fly-by-night operators out to make a quick buck at your company's expense.