Introducing the post-deal roadshow.
Congratulations! You just raised a tonne of money and validated investor demand in the business.
Yes, you had to give a discount, maybe even an option, but you got it away and the job is done. Now you can go back to concentrating on the actual business, spend the money, and build value.
But wait a second… who just sold us down? Why are there more sellers? What's going on??
We’ve crunched the numbers and I can tell you that, on average, 44% of all placement stock is sold in the first 12 weeks. That’s a lot of “long term”, “long only”, and “supportive” shareholders hitting the market. Some of this is genuine, some of it isn’t.
Regardless of how you feel about this, it’s the game you’re playing in. So let’s look at two things: (1) what does this mean, and (2) what can we do about it?
What does it mean? A worked example
This week, I was talking to a company that raised $5m on a $60m market cap. They turn over around $40k a day pre-deal.
Whilst their post-deal sell-off may be higher or lower than 44% let’s assume they are an average outcome and plan for that.
The numbers
44% of the $5m raise is $2.2m.
12 weeks = 60 trading days
$2.2m / 60 trading days = $37k/day extra
Their selling volume is, on average, going to increase from $40k/day to $77k/day - basically doubling their pre-deal revenue. Twice the supply with no change in demand will only lead to one thing: a lower share price.
So here are five steps to help limit your post-raise selloff:
- Plan for it.
Include a post-deal structure in your raise plan. You likely have a lot of structure about getting the money, but now you need to give that same rigour to keeping it. Work with your team - internal and external - to have the right activation in place. - You have a list - use it
It is clear who came into the placement. You literally have their names on a list with associated contact details. Communicate with them, drive engagement, and let them see the Company behind the Code. Treat them all like you would a long-term top 20. - Add demand
Try to limit supply - by limiting who is selling - but also create demand. Generate more interest in the stock. Don’t take your foot off just when your volumes are about to double (in a bad way). It will double the impact: lower demand AND higher supply will only accelerate a decline. - Align incentives
By thinking about this before a raise, you may be able to align broker or investor incentives around holding for that period. Lockups in hot deals or a loyalty option pushed out. Broker retention/retainers/options that are tied to holding periods could also come into play. - Take ownership
The share price is not something that can be outsourced. It is something that you can have internal and external support for, but blaming “a lack of broker support” or “our external IR overpromised” does not change the outcome. Take ownership, drive focus and attention to get the results you want.
Follow these five steps and you will look a lot better post-deal, and importantly, you will maintain that all-important momentum in the code.
