Although meeting with potential investors is an important task in small cap investor relations, it can be difficult to get there. These meetings are very exciting and could change the future of a company.
Management in the small cap world is often eager to share its latest achievements in the hope of luring new investors onto the shareholder registry. We must ensure that the foundational elements in IR are addressed to the various types of investors before any meetings can take place.
A measured approach to IR is what is required. What does this mean?
The investor website should be appealing, informative, and up-to-date. The order in which news releases are listed should be chronological, with the most recent being first.
The formal investor presentation must be relevant, as it can become a political minefield. Everyone seems to have strong opinions about what should and shouldn’t be included in the deck. The deck is 64 pages long and counting. CEO asks if it’s too long. Others want to add more slides. “Just three more.” Is that okay? They suggest that they be added to the appendix. This is in case the CEO or his team needs to explain the workings of the proprietary flux capacitor.
The world has changed. No longer are there 60-minute meetings in person with a portfolio manager. You may be able to spend 20 minutes with a busy investor if you are lucky. It can be difficult to see the Zoom room and make sure that the investor is awake. Fatigue, distraction, and ennui are more common the longer the presentation. Bored and tired is a normal part of life.
The rule of thumb to make great investor presentations is 10-20-30. Ten slides maximum, in a 30-point font. Presentations should be no more than 20 minutes long. You aren’t able to effectively communicate your investment thesis if you have more than 10 slides. Investors don’t want to be overwhelmed by too many details. Focus on the important details and tighten your message. This will make your message more memorable.
One small-cap portfolio manager said that his ideal presentation is three slides. Slide one explains what the company does, and why it’s worth investing in. Slide two shows the balance sheet and slide three the cap table. However, this doesn’t always work for small caps.
Many small-cap companies don’t have mature cap structures and are still in growth mode. Shareholders will take stock based on the company’s story, not its fundamentals. It is important to create a compelling story, rely on reliable sources and make it engaging.
Who’s your name?
A presentation for small caps should always begin with an introduction. This should include who you are, what your value proposition is, and why it matters. Next, consider the market opportunity. Next, discuss the market opportunity. This will show your competitive advantage and why you are important.
This is typically the slide that shows big numbers, hopefully more than millions, and an attractive five-year compound annual rate of growth. This is where you need to be realistic. Investors expect you to talk about momentum. They want to see steady growth in revenue and market share. Not your plan to capture 1% of the market.
If your company has a lot of prestigious customers, you can add gratuitous logos on the customer slide. However, be sure to mention how much of your total sales they are and what problem you solved for them. You can arrange the logos according to stature. However, if the client isn’t growing and you are doing little business, it’s okay. This is more powerful than listing every Fortune 500 client you serve, because it provides context and value.
The cap structure is next. Small companies may have large amounts of shares outstanding and classes. This slide should be simple, clear and easy to comprehend. To explain complex situations, use footnotes.
Next comes financial slides, usually a balance sheet. This can be very persuasive. Management is a great steward and holder of capital, as evidenced by the smaller numbers than in the cap structure. This message of ‘good governance’ highlights how the CEO has gotten a company to this point, and how additional investment can help accelerate company growth.
End with five key reasons why you should invest in your company.
Let’s move on to the rogues gallery. The slide with the executive team includes headshots, achievements, and a slideshow. The bios should be concise and relevant to your company. It should explain why the person is in a particular role. This area is great for logos that are related to previous roles in other companies.
Get in gear
Practice your new 10-page deck. Do you remember 10-20-30? It is important to present the information in 20 minutes. Zoom meetings typically last 30 minutes. The presentation should be 20 minutes long with 10 minutes for Q&A.
The 30 in our magic formula is the font size. For anyone over 40, anything less than 30 points will make it difficult to read. A larger font will help you reduce the information on each slide by allowing you to use it more often. This concept can be extended to include more words and larger font sizes. A few dozen words are always more than two dozen.
Keep your deck updated at least quarterly. It shouldn’t get old. As soon as possible, add new clients and update the cap structure. This makes it easier for you to seize on unanticipated opportunities. If possible, the same team created the document once it was in the 10–20-30 format. This ensures that the value proposition is consistent throughout the company’s communications, including investor presentations and website updates.