Small caps failing to target small investors, survey shows

Gap between perception and reality highlighted by OTC study

Small-cap companies are failing to focus efforts on targeting small institutions and retail investors, according to a new study from OTC Markets. Instead, the survey of 117 CEOs and CFOs of companies under $2 bn in market cap that are traded on the OTCQX and OTCQB markets shows that these firms see liquidity as their top capital markets concern.

This is followed by increasing their share price, raising capital and attracting institutional investors. Despite studies that show smaller companies are owned by a majority of ‘self-directed investors’, OTC says attracting retail investors is not a priority. The finding reveals ‘a gap between small companies’ perceptions about their capital market needs and investor demand,’ says OTC in a press statement.

‘Small-cap companies have been largely ignored by Wall Street, so smaller issuers need to think differently when it comes to attracting new investors,’ notes Jason Paltrowitz, executive vice president of corporate services at OTC Markets Group, in the release. 

‘Instead of targeting large institutional investors, small caps should focus on attracting their ‘natural’ investors: small institutions and individual, self-directed investors who are looking to become long-term owners of the company’s stock. These findings underscore the importance for small-cap companies of having a robust retail IR strategy.’

When it comes to how these firms target investors, OTC finds that small-cap companies employ everything from non-deal roadshows to investment conferences and virtual investment conferences, with social media apparently growing as a targeting tool. In fact, almost half of respondents say they use Twitter, LinkedIn or other social media to reach new investors.

That said, at the almost three quarters of these firms where the CEO or CFO manages IR – instead of a dedicated IRO (12 percent) or an external IR firm (9.5 percent) – only 11 percent of management time is spent on investor outreach. Instead, OTC says one third of management’s time is spent on growing company revenues, with regulation compliance taking up 18 percent of management time and capital raising occupying 17 percent of management hours.

The study also finds that 68 percent of the companies surveyed have no analysts following them. Despite this, only 28.5 percent use or intend to use paid-for research, while almost 10 percent say they have never heard of paid-for equity research.

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In this report, OTC Markets examines the pros and cons of common debt and equity financing methods used by smaller companies:

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This paper is part of a series dedicated to addressing small-cap investor relations issues. You can revisit the first two reports in the series here:




OTC Markets Group operates the OTCQX Best Market, the OTCQB Venture Market and the Pink Open Market for 10,000 US and global securities. We enable investors to easily trade through the broker of their choice and empower companies to improve the quality of information available for investors. With more than 6,000 small and micro-cap companies trading on our markets, we are uniquely positioned to understand their needs and the issues they face, and help them effectively navigate the public markets.

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