Out of all the publicly traded companies selling off stock to individual and institutional investors, vying for investors' money and the media's attention, how can the small fish survive in the sea of Wall Street sharks?
Before and after they go public, these "small cap" companies need to develop a focused investor relations program that targets the right analysts, investors and media.
A small cap company has a list asset value of $4 million, and must maintain a minimum of $2 million in its portfolio under NASDAQ classification.
Creating an IR Program
Eileen Halsch, managing director of investor relations firm Johnnie D. Johnson & Co., Inc. (JDJ), in New York, explained how a small cap company gets from its preparation to go public to developing a long-term communications plan.
The underwriter, or investment banking firm, "holds the company's hand until it goes public. Once the IPO (initial public offering) happens, the company's left to sink or swim. We then help them maintain the day-to-day communications," said Halsch.
Communications include creating a fact sheet, usually about two pages, complete with spreadsheets that have all the financial information, and a corporate profile, about four to six pages long. These are sent to target markets, and then press releases are sent out to announce any new business, including change in management, mergers, acquisitions and quarterly reports.
At Sparta Pharmaceuticals [SPTA], Horsham, Pa., CEO Jerry Hook said that "in the biotechnology industry, our real challenge is not being grouped as just another one of thousands of small cap biotech companies...we have to tell a clear, concise story that shows the product is safe and effective, with little risk to the investors."
Sparta breaks through the small cap clutter by showing proof to investors that there is a market for each new product or drug, and that Sparta will do its best to give investors a "rapid development time." This means that investors will see stock returns before the biotech standard of 12-15 years. Sparta gets the product and the research out quickly to the medical community, and then tries to partner with a larger company, who needs what Sparta offers, and will put up capital for future developments, in return.
To facilitate communications between the company and investors, JDJ holds small group meetings so management can tell the company's story and answer questions, or one-on-one meetings, for those who are already invested.
JDJ conducts "playbacks," anonymous surveys of attendees of the group meetings, where comments, potential risks and the company's status versus its competitors, are voiced by attendees. J&J compiles the remarks into a report for the company's management, and includes recommendations.
Halsch said that some small-cap companies may not have a good story to tell individual investors, so they have to rethink their goals or focus on the institutional market.
The most necessary aspect of an IR plan is to "communicate both the good and the bad, and always be available to investors and analysts," said Halsch. "Investors will forgive you if something goes wrong, as long as they have an answer as to why is happened and know what you're doing to correct it.
Jeffrey Goldberger, spokesperson at the investor relations firm, Stern & Co. in New York, said, while most firms classify IR and PR as two separate entities, Stern combines the two into a well-planned, financial communications program.
"It's a combination of strong media relations and learning what a company is all about and what their goals are...getting good story placement in the right trades, local and national media lets possible investors know what the company is all about."
But the PR aspect of the communications plan should be proactive, said Goldberger. For example, a new treatment for enlarged prostates by VidaMed [VIDA], was recently approved, and by getting media coverage, in the New York Times on MSNBC and in local press, doctors began getting calls about the treatment, who then became interested and looked into it. As a result, the treatment had generated an interest in the medical community, and stock sales skyrocketed. "Strictly IR programs have their limitations," said Goldberger.
The biggest mistake that many small cap companies make is that they don't continue a proactive communications program once they go public and start turning over stock profits, according to John L. Jacobs, vice president of investment services, at NASDAQ, Washington, D.C.
"If you look at the 10,000 plus companies out there, you'd be surprised how many, about 25 or 30 percent, actually continue proactive investor relations...for many, two years down the road, after they've gone public, they have to start all over again (with IR) from scratch."
(Johnnie D. Johnson & Co. Inc., 212/425-4848; Stern & Co., 212/888-0044; NASDAQ, 202/496-2500; Carl Thompson Associates, 303/494-5472; Sparta Pharmaceuticals, 215/442-1700)