The key to making the most out of investor relations, and positioning a business toward a successful initial public offering (IPO), is understanding the primary differences between each stage of growth, according to Deb Schwartz, current advisor and former CFO at Cameo, a Chicago-based video-sharing website.
“Early stage — series A or series B — is really where folks should start investing in investor relations, which doesn’t necessarily mean hiring a dedicated function for it, because it probably isn’t a full time job for anyone, but it really is a stage where you can start being deliberate about the capabilities you are building out, she said in a recent Airbase webinar.
Schwartz has a background in investor relations. She was an equity analyst for Goldman Sachs from 2011 to 2016. Most recently at Cameo, she led several financing rounds, including a Series C financing and debt raise, according to her Linkedin profile.
With tumultuous economic conditions brewing, including inflation, geopolitical tensions, stock market volatility and the most aggressive monetary policy tightening since the 1980s, finance leaders have struggled to raise funds to take their companies public. The proceeds from U.S. initial public offerings (IPOs) plummeted 94% this year compared with 2021.
In order to put your business on a successful track for an IPO, whether the economic climate is favorable or not, Schwartz outlined the process of controlling the narrative of your business when talking to investors and why each stage of growth is different:
Know the stages
Different stages of growth require different management strategies, and this is the case for investor relation strategies as well.
Each stage of growth has specific relationship characteristics with investors, according to Schwartz.
“In early stages of growth, the relationship with investors is very collaborative,” said Schwartz. Usually, there are a small number of key investors who have specific backgrounds pertinent to the company’s direction.
“When companies graduate to the mid stage, you as a company and you in the office of the CFO have to be really accountable for KPI metrics, your financial targets, etc.”
“You need to demonstrate what you say you’re going to do, you can actually do,” said Schwartz. At this middle ground stage, the investor group is still pretty small — you have a large number of small investors and a small number of large investors, she explained.
“In the transitioning stage to a public company — finance leaders are managing a much larger investor base.”
“They have no control as to when or who comes in and out of stock and investor relations becomes a lot about managing expectations. Now you are also managing regulatory requirements,” said Schwartz.
Besides the characteristics of each stage itself, different management styles are required to have functioning investor relations. Early on, it is really a CEO focused role, but when a company reaches the mid stages of growth, this transitions to a partnership between the CEO and the CFO, said Schwartz.
Once you are a public company, then is a good time to dedicate an entire team or function to investor relations, but ignoring this in earlier stages will come back to bit you.
Quantitatively represent your qualitative story
“It is through the process of figuring out what your investors care about that you can be more proactive in controlling the narrative,” said Schwartz.
Although an early stage company may not need to hire on an entire investor relations team, it would behoove them to start building out the direction the business should take. Not every investor will be right for every business, and understanding your own story is the first obstacle to tackle, according to Schwartz.
First, she says, finance leaders need to have clarity on what their investor narrative is — that is, asking questions like ‘who are we as a company?’ and ‘where do you want to go from here?’
After that, aligning that narrative with metrics in the business will be easier. “Once you have that qualitative story, then it is on the finance function to quantitatively represent that through KPIs that matter the most,” she said.
Proactivity is next. In order to either get you from a series A funding round to a series B, or to an IPO, putting together an investor packet and investor reporting that demonstrates consistency is imperative, Schwartz stressed. “You really need to put the building blocks in place for proactive communication, not just reactive,” she said.
Finally, Schwartz explained where and how investor relations can go awry and how to avoid that happening — putting it off as an afterthought or passing along the torch to whoever has time. No matter your stage of growth, whether that’s early, mid, or public, a clear investor relations strategy is key, according to Schwartz.