Listing your growth-stage company on the public markets could give you access to a diversified pool of investors who are interested in seeing your business succeed.
- Leaders who want to grow their small companies through the public markets need to build a solid team of various players first.
- Add six key players – investment dealers, deal makers, the media, data providers and platforms, regulators, and retail investors and stockbrokers – to your company’s team.
- After listing, analyze the effectiveness of your team by looking at stock performance measures.
But before you list, it’s important to develop a strong ecosystem – a team of vital players – that can attract the right support, help spread your message, and set you up for success.
Business leaders looking to the public markets as a source of funding and development need to first establish strong ties with the various players and entities involved. Building a solid team that ties together multiple perspectives will be a foundational step for how you adapt to this new phase.
1. Investment dealers
Independent dealers act as a source of insight into investment opportunities with compelling returns, and investors pay attention to them. In particular, the structure of Canadian independent investment dealers uniquely sets them up to support venture stage companies. These dealers typically have a larger risk appetite and are willing to put their balance sheet to use through transactions like bought deals. In this capacity, having an investment dealer as a coach figure can help you grow your investor base.
Venture companies that see support from independent dealers today can grow larger tomorrow. We’ve seen this in the cannabis space: Canada’s first cannabis company listed on TSX Venture Exchange in 2014. Today, there’s a community of publicly listed cannabis businesses on Canadian stock exchanges representing approximately $60 billion in market capital (as of May 31, 2019) – due in large part to the initial support from independent dealers.
It’s not just cannabis, though. Independent dealers are crucial in making industries like battery metals, mining, blockchain, and disruptive technologies more accessible to investors.
When partnering with a dealer, you’ll need to look out for two key capabilities. First, look at dealers’ track records in your space. If a dealer has tangible experience in your industry, you can trust that dealer to know which investors are best suited for your company.
The next thing you should look for is experience working with companies at the same stage as yours. Where established large cap companies tend to attract investors by broadcasting their successes, small cap companies are likely still in the early stages of building a business and will need to attract investors with potential for future opportunities. Find an investment dealer who understands how to get investors to buy into the future vision of your business.
2. Deal makers
Behind most successful companies on the public markets, you’ll find deal makers that helped them get there. Consider JJR Private Capital, Varshney Capital, County Capital, or Kin Communications, all of which have decades of experience in bringing growth stage companies to market.
Acting as strategic quarterbacks, deal makers are investors who hunt down interesting growth stage companies and use their track records and existing followings to generate buzz in the brokerage community. Then, they use their in-depth understanding of the regulatory environment to help venture companies navigate the structuring of a successful deal.
Ask your current bankers or investors to introduce you to deal makers in your space. In this case, it’s also important that they have experience working with companies similar to yours so they’ll better understand how deals in your space come together. By engaging deal makers to take an equity stake early on in your company’s development, they stand to be rewarded in the long run with returns on their investment, which aligns them with the success of your organization.
A lack of investor interest is among the top 20 reasons why startups fail. To nip this trend in the bud, companies can engage with media outlets, which have a broad reach that goes far beyond that of press releases and SEDAR/EDGAR filings. For entrepreneurs who are trying to change the world, it’s important to leverage media to tell that story to the right audience of retail and international investors and customers.
When engaging potential investors, start with a strategy that’s based in education. Choose a theme that relates to your business and share practical, usable content that will give them insights not readily available anywhere else. Encourage engagement: Media strategies should never be a one-way street. Share content on your company’s platforms and respond to questions and comments in a timely manner.
A strategy based around education and engagement will position you as a reliable, knowledgeable company in your sphere – attracting investors and customers alike.
The media can also help keep investors aware of your organization’s performance beyond its initial listing. And don’t forget to get personal. Investors will appreciate direct insight from your management team, whether it’s through social media or in person.
4. Data providers and platforms
Within the public market landscape, there’s a noticeable gap when it comes to coverage of early stage or venture companies. And if investors don’t have access to credible third-party insights on a company, they’re less likely to include it in their investment portfolios.
Employ data providers that will put your company in front of the right investors and best engage your target audience. VRify, for instance, is focused on helping retail investors understand complex mining disclosures by providing visualizations. TMX Matrix, meanwhile, is meant to provide a platform for companies to engage retail investors using video, investor relations content, and key business metrics. You can choose the right platform for your business and share information to provide investors with better insights.
A robust investment community sits within a structured regulatory framework. Regulators are tasked with maintaining a fine balance between addressing the public interest, protecting investors, and creating an efficient market.
Within Canada, for instance, regulators understand the value of the venture market to the economy, as the companies within it present the promise of new jobs and potential global expansion. Aligned with this sentiment, regulatory bodies such as the Canadian Securities Administrators are working toward reducing the regulatory burden placed on public companies.
Growth companies can seek guidance from exchanges and regulators well before listing to address any confusing requirements or barriers. You can also continue working alongside regulators after listing to ensure compliance into the future.
It’s important to work with these bodies throughout the listing process, as they often offer resources to prepare and better educate companies. Some exchanges hold prefiling sessions with guidance on how to avoid potential hurdles or a space in which to test products and services. The CSA, for instance, has the CSA Regulatory Sandbox, which allows fintech businesses to test their business models in a more flexible format.
6. Retail Investors and Stockbrokers
Generally, retail investors are passive investors, which means they often allocate most of their portfolio to large cap companies and structured products instead of venture stage companies, which may pose more of an investment risk. Allocating a portion of an investment portfolio to those earlier stage businesses typically ignored by ETFs or index-based funds has the potential to allow investors or active fund managers to outperform the market and to engage with dynamic venture stage companies.
To capture this pool of capital, companies need to deliver regular news flow on the state of their businesses or – if they’re in developing spaces – industries.
As you work to attract these investors, align regular updates with your media strategy so you have timely content to share across your platforms. Remember that investors are attracted to news that creates a sense of urgency. This includes items that might materially move stock prices, such as a company getting its cannabis sales license or a material M&A event. While you won’t be able to give specific investing guidance on these events, you should communicate their timing to the market.
Supporting companies in communicating to their audiences, brokers are responsible for investigating companies and interviewing stakeholders to gather information the average person wouldn’t know to ask. Because of this, they can present informed opportunities to retail investors based on risk profiles, making them a valuable resource that may help communicate your story to a broad audience. With this in mind, make sure you engage your network of brokers when you have big news to share.
Building a better business
Once listed, the best way for you to analyze how well your ecosystem is working is to look at stock performance measures. An increase in liquidity or growing attention in the markets is a good sign. If you’re not seeing that, it might be that investors don’t have sufficient insight into your company.
Consider changing how you communicate your story and who you’re engaging to tell it. Start by focusing on the dealers, investors, and deal makers – the people who understand your vision for changing the world and can portray that effectively to other interested parties. And once you’ve secured a supportive investor base, be fully transparent and not overly promotional, communicating true key performance indicators to show your growth.
Think about the ecosystem in place to support your company’s growth. This is the collective puzzle that will guide you and help ensure that your organization is a successful public entity, so if you’re missing key pieces, now might be a good time to figure out where you can find them.