Small-cap IR: Putting together a winning investor presentation
While a key task of investor relations is arranging meetings with potential investors, getting there is often fraught with potholes and anthills. These are, of course, very exciting in their own right – any one fund manager could potentially invest a very large sum in a company and change its future.
Often, management in the small-cap world is very keen to present its recent achievements in the hopes of luring a new investor onto the shareholder registry. Before any meetings can happen, however, we need to ensure the foundational elements of IR address the many different types of investors and investments.
What is needed is a measured approach to IR. What exactly does that mean?
First, the investor website must be attractive and contextually engaging, up to date and sound. All news releases should be listed in chronological order, most recent first.
Second, the formal investor presentation, which can become a political minefield, needs to be relevant. Yes, everyone seems to have very strong opinions on what should – and shouldn’t – be included in the deck. Running at 64 pages (and counting), the CEO asks, ‘Is it really too long?’ Others in the room want to add a few more slides: ‘Just three more. Is that ok? Perhaps we can put them in the appendix,’ they suggest, just in case the CEO and his team need to explain the inner workings of their proprietary flux capacitor.
But the world has changed. There are no more 60-minute in-person meetings with a portfolio manager. If you’re lucky, you’ll get 20 minutes with a time-starved investor. Even then it can be rather hard to read the Zoom room to make sure the investor is still awake (and paying attention). The longer the presentation, the more likely fatigue, distraction and ennui will set in. It’s par for the course – whether it’s message muddling, meeting volume, question repetition or loss of focus, at any given time, someone is bored and tired.
A rule of thumb for great investor presentations is 10-20-30. No more than 10 slides, presented in 20 minutes in a 30-point font. If you need more than 10 slides, you are not articulating your investment thesis properly or, more importantly, efficiently. Investors do not want to be burdened with an overwhelming number of details. Tighten the message and focus on the most important aspects. This will make you much more memorable.
A small-cap portfolio manager once mentioned his ideal presentation unfolds in three slides: slide one states what the company does and why it’s a good investment, followed by a slide on the balance sheet and then one on the cap table. But that doesn’t necessarily work across the board for small caps.
In the small-cap world, many companies do not have a mature cap structure and are still in growth mode. Investors take shares based on a company’s story versus a company’s fundamentals. That’s why it’s so important to get down a strong narrative, make it compelling and base it on real sources of information.
Who are you?
For small caps, a presentation should always start with an introduction: who you are, your value proposition, what you do and why it matters. Next is the market opportunity. Discuss the key mega-trends shaping the world and associated economic, societal and regulatory pressures. This demonstrates your competitive edge and why you’re important.
Typically, this is the slide where we see big numbers, hopefully more billions than millions, along with an attractive five-year compound annual growth rate. Be realistic here. Investors want you to talk about momentum and want to see a gradual climb in revenue and market share, not your plan to capture 1 percent of the market.
If the company has large, prestigious customers, add the gratuitous logos to the customer slide but be sure to comment on what portion of your total sales they represent and the problem you solved for them. It’s ok to arrange the logos by stature but, if you’re doing very little business with a client and the account hasn’t grown, you should have a response handy. This is much more powerful than listing every Fortune 500 company you serve because it provides both value and context.
Next is the cap structure. For small companies, there can be some pretty large numbers in terms of shares outstanding or classes. Keep this slide simple, clean and easy to understand. Use footnotes to explain complicated situations.
Financial slides come next, typically a balance sheet, which can be cogently powerful. The smaller numbers (compared with the cap structure) highlight management as a great steward of capital. This ‘good governance’ message accentuates how the CEO bootstrapped a business to this point and how additional investment can accelerate company growth.
Finish off with key reasons to invest in your company – no more than five points.
Onto the rogue’s gallery: that slide with the executive team, complete with headshots and achievements, rounds out the deck. Keep the bios short and relevant to the company, explaining why that person has a specific role. This is a great place to use logos for previous roles at other companies.
Get in gear
Practice your new 10-page deck. Remember 10-20-30? Make sure you can present it in 20 minutes and not a minute more. Typical Zoom meetings last 30 minutes, the presentation should last 20 minutes, allowing 10 minutes for Q&A.
Lastly, the 30 in our magic formula: this is the size of your font. Anything less than 30 points is hard to read for anyone over 40. Using a larger font whenever possible will also kill two birds with one stone as it forces you to minimize the amount of information on each slide. Try extending this concept not just to the number of words and font size, but also to syllable count. A few dozen words is always more than two dozen.
Finally, keep updating your deck – at the very least quarterly. Don’t let it go stale. Add new clients, update the cap structure and the financials as soon as they’ve changed. It makes it easier to jump on unexpected opportunities. Where possible, use the same team that created it once it’s in the 10-20-30 format. This ensures the value proposition is consistently presented throughout and, for that matter, in all communications released by the company, from website to investor presentation.
Jonathan Paterson is founder and managing partner at Harbor Access