“I only want your best investors” MD #1,049
”This can’t go wide, only to people who will hold” MD #2,654
When I was running point on the Equities business and working deals I used to get told a variation in these quotes multiple times per week. I always struggled with how to respond to it as, to me, every investor could be the best (buy, hold, buy more) or the worst (buy, flip for profit), but I didn't have the data to support my belief.
Until I spoke to Jeff* (not his real name).
Jeff is a Fresh Equities user, and a very active one. Over the last four years, he has bid on 60 different placements. I had heard mixed stories about Jeff, some companies loved him whilst others had blacklisted him.
Jeff sounded like the missing link in my investors' thesis, so this week, I gave him a call…
Jeff told me that of the 60 investments he made through Fresh Equities, he still holds 15 of them. Of those 15, he is Top 20 in five of them and has increased his holdings by buying on-market. Like a good top shareholder, Jeff also promotes these five companies to other investors in his network.
For those five companies, Jeff is the perfect HNW investor.
What else could you want?
So if he still holds 15 of 60 investments, what happened to the other 45?
He sold them, and sold them quickly; sometimes on the day of settlement. This isn’t unusual behaviour, 44% of shares bought during a placement are sold within three months.
Sometimes he sold them for a discount arbitrage and sometimes he flipped to keep the free options. In almost every case for these 45 companies, it was quick, deliberate, and unemotional.
The difference?
This is the same person, with the same mandate, and same investment size, who is behaving wildly differently across various companies. If we were to segment him as a shareholder, he'd sit in three or four different segments, depending on the company.
For five companies that Jeff is a Top 20 shareholder of, he's the perfect shareholder. For the other 10 that he holds, he's also in a favourable segment (but maybe he could buy a bit more on market). For the remainder, though, he's a nightmare trader that should never be allowed on the registry again!
So what is driving the difference in Jeff's behaviour? Here is what he said:
“I know them”
In a lot of cases, he was an existing holder. In others, the company had identified him as a good potential shareholder and invested time in building a relationship and communicating with him.
“I watched them present”
Jeff isn't an avid conference attendee, so I asked him how he had seen the presentations. The answer was laughably simple: there were, for the most part, more videos online of the companies he kept vs those he sold.
“They were a company - not just a code”
I'm outing myself here: it was Jeff who came up with this phrase and it is the genesis of my “Company vs Code” message. The 45 that he flipped were just three-letter codes, the 15 that he remains invested in are people on a journey that he believes in.
Most companies think that perfect investors already exist and that you simply have to find them, but the reality is that you need to create them. Perfect investors believe in your story, not your code. They can't become a shareholder if they never hear your story.
Jeff is the perfect example: 3 out of 4 companies see him as a lowly flipper, whilst to the remaining 1 in 4 he is an asset.
So, how do you convert more people into the best investors?
This is your responsibility; quite frankly, no one knows it better than you and your board. Most issuers underinvest in their story and think that it can be told through a single slide on a presentation or the home page on the website. The companies that own their story are constantly finding new and interesting ways of telling it. Outsource help, IR forks and brokers are brilliant sources of help, but don’t outsource ownership.
Get your company, your story, and your name out there in front of the market. The best companies do this with scale in mind. Has an investor asked a question? Answer it in public so that 500 other investors can learn more!
It can be disheartening to put yourself out there and not see any engagement, but don't be fooled. Less than 1% of those who see your content will engage with it, but the remaining 99% will remember it if you consistently reach them. Shout into the void, it will eventually shout back.
Don’t wait for a deal roadshow to start telling your story. Investors are more likely to buy into your story if they don't think you're just telling it to raise capital.
Get out there every day and meet with people. Do it in the downturns, do it in the upswings. Do it constantly. Don’t hide. (Shoutout to Steve and Michael at Zoom2u for allowing investors to book time with them via the investor centre).
By communicating early and often, you're inviting investors to be a part of the story as opposed to just spectators.
Aim to be a shareholder's top portfolio company by being in their top 3 in terms of conviction. Sometimes a shareholder has to sell, and for someone like Jeff, the basis for what is sold and what is kept comes down to conviction more than holding size.
Being in the top three conviction companies protects you from being at the bottom of the ballot when shareholders need to sell.
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