Investor Relations in a Crowdfunded World
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The rapid expansion of equity crowdfunding is bringing new capital into the market and along with that many new investors. As investor numbers grow so too do the challenges and opportunities presented by good investor relations. Once the preserve of larger cap companies investor relations is now coming to the crowdfunding world.
When Crowdfunder raised £650,000 in 3.5 hours through an equity sale on Crowdcube a couple of weeks ago they received a substantial investment and a significant number of new investors. Brewdog, after three equity crowdfunding rounds, have more than 15,000 investors. The success of these campaigns, and others like them, speaks to the value of the crowd as an asset that can be used to create an active investor base. It is important to nurture and value such an asset, and this is all the more so once they have become a crowd of investors. The forward looking firm is also maintaining good relations with the wider investment community.
James Watt of Brewdog speaks highly of the value that they place on their investors as an asset that goes far beyond simply their financial investment in the firm. To James keeping the investors engaged, informed and motivated is central to these individuals being “ambassadors” for the firm. And he is not alone in that view. There is plenty of evidence to suggest that good investor relations delivers real results but till now good investor relation practice has tended to be an activity that only larger firms have really engaged in.
The disintermediated nature of crowdfunding means that investors are “active” investors closely bound into the firm unlike those whose investments are mediated by an institutional body or fund. Recently published research suggests that equity crowdfunded companies increase revenues on an average of 351% and that the process of crowdfunding far from deterring other investment in fact builds momentum for it.
But as crowdfunding is founded in the long-tail of many small investors offering the bulk of any sum sought, and in driving down the low incremental transaction cost in order to make that possible, small capital companies are presented with a challenge when it comes to managing what might seem disproportionately large investor bases. The Annual Report – Global Trends in Investor Relations – published by BNY Mellon pointed out how smaller firms have a more balanced approach dealing and communicating with retail investors compared to institutional investors and such a characteristics will undoubtedly be the case in a crowdfunded firm. But if the granular nature of crowdfunded equity issues means that the proportionate number of investors increases in a crowdfunded firm so too does the cost and effort associated with managing a relationship with them.
But managing the investor relations process well has many benefits so there is an imperative for crowdfunded and smaller cap firms to embrace the idea of investor relations seriously. By effectively managing the communications and trust with existing investors a firm builds a path for new investors, and as we know, building a pipeline or momentum to any crowdfunding campaign is a key to its success.
Trust transparency and symmetry of information access is a very important part of the investor relations process. The acceptability for privileged access has taken a battering in recent years and only in the last few weeks the disclosures around “preferred bidders” and their behaviour in the Royal Mail floatation has demonstrated that public trust in the financial industry has not yet recovered.
The flow of information in good investor relations includes third party analysis and examination. But smaller firms rarely attract the attention of analysts which can make certain types of insight and information hard to find. I have written for some time that there is an opportunity here for a solution provider to enter this space and provide a mechanism to effectively manage the communications and information flow between smaller companies and their investors, service providers and the community that work with them. So it was great to come across Unquoted.
Unquoted is an evolving UK based investor relations management company that is creating innovative technologies to streamline communication with investors in the small cap market with the explicit intention of restoring trust in the investment markets through radical transparency.
Building on a legacy firm to re imagine how investor relations can work with new innovative technology we were pleased to be asked to help them develop that service and we would recommend you take a look at what investor relations could look like very soon by dropping in on the Unquoted site.
Disclosure: Tim Wright acts as an ambassador and adviser to Unquoted
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