Investor Perspectives On Small-Cap Website Failures9 minute read

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Investors are constantly surprised by the disconnect between what they expect to find[1] on corporate websites, and what they actually find.  This disconnect can erode a tangible amount of shareholder respect.

Some key things that small-cap officers and directors may overlook in this regard:

  • Investors review dozens of websites a month and have likely analyzed many hundreds in their careers. It’s one of the first places they are going to spend time to decide whether your company is of interest to them.
  • It is common for investors to rule out even meeting with small-cap companies based on their websites.
  • Investors rarely, if ever, tell an IR firm or the company that a meeting was ruled out because of the company’s website.
  • Why is the erosion of value “silent?” Because your company could be driving away countless investors, and… you’d never know it.

Mistake #1: Failing Investor Communications 101. Selling stock to investors is fundamentally about storytelling.  And the best, most effective storytelling is simple, particularly in the small-cap ecosystem where most investors are generalists.

A great way to test whether your company’s website is passing or failing its central storytelling mission is to have someone (friend, family, etc.) who has never heard of your company spend about 30-60 seconds reviewing the “above the fold” section of your website’s home page.

When they are done, simply ask them to explain to you – in their own language – what the company does, and why it seems interesting to them.[2]

Though this might sound too simple to be helpful, most investors will tell you that well over 50 percent of small-cap companies fail the test.  And, it’s not even a close call.

How does this go badly in real life? When most small-cap investors don’t understand what your company does with minimal effort, it deters them from buying your stock.  Not only will retail investors often shy away from buying stock in companies they don’t understand, but institutional investors will shy away, too, because they know that there will be fewer investors to buy their stock when it comes time to sell. Most successful small-cap companies with complex technology, science, etc. have learned that granular, sophisticated, technical information is important to their partners, customers, and other industry experts, but the home page of your website isn’t the place for it.

Mistake #2: Bad Video or No Video. We live in a video world. For example, approximately 5 billion videos are viewed on YouTube every day.  Video has the potential to really aid in storytelling for all website constituencies, particularly for investors.

Every small-cap company with a market cap below $500 million should consider having an “About Us” video on their home page.

Here are 10 simple guidelines.

  1. Aim for 2 minutes and under: people’s attention spans online are short.
  2. Your video needs to be in plain English, and it should assume your audience is not technically inclined.
  3. Try to avoid cartoons, animation, and humor; investing is serious business.
  4. Stick to the facts and avoid overproduced or ostentatious post-production; investors know that flashy videos are often compensating for something.
  5. By the same token, steer clear of “About Us” videos that have a “DIY” look/feel. Every public company can afford to purchase a professionally produced video.
  6. Make sure to embed the video on your website, so you are not sending investors elsewhere to watch the video.
  7. Make sure the video plays just as effectively in desktop and mobile environments.
  8. Update your video when factually necessary or when there is a change to the look/feel of the branding; videos need to be current.
  9. Use recognized video players (i.e., YouTube, Vimeo, etc.).
  10. If an executive is going to appear on the video and read from a teleprompter, make sure they have practiced it enough that the voiceover doesn’t sound awkward; this will undermine its believability.

Mistake #3: Hiding Critical Information. Investors in small-cap companies invest primarily in jockeys not horses, so they are always looking for as much information as possible about officers and directors.

But despite the fact that this information is highly sought after, far too many small-cap websites either omit it or make it challenging for investors to find it.  Frustrations include:

  • Websites that have no management or board member names;
  • Websites that mention management and/or board members names, but have no corresponding bios; and
  • Websites that make you navigate through numerous layers of the site to find those bios buried in the investor relations or corporate governance portions of the site.

This is not only frustrating, but it sends a terrible; your company either doesn’t understand what shareholders care about, or your company does understand and is purposely trying to camouflage this information. Though it perhaps goes without saying, both of these are bad.

Three Important Takeaways

  1. Officer and director bios can’t ever be more than two clicks away from your home page, and they need to be clearly labeled.
  2. Make it easy for investors to be able to read and compare officer and director bios. In other words, omit fancy “rollovers” or technology that makes bios appear/disappear with cursor movement – just put the bios on a page in full text format.
  3. Don’t send investors to LinkedIn to read a bio (though a LinkedIn link is additive); it’s more work for them, and LinkedIn profiles are not the same thing as professional bios.

Mistake #4: Deficient Officer and Director Bios. What’s included – and omitted – from professional bios speaks volumes to savvy investors.

Here is what you need to know about what should and should not be included in website bios, and a precise format your company should consider following.

Do website bios really matter that much to investors?

In a word, yes.  Consider this, from an investor we spoke with.

“During my investing career, I’ve caught officers and directors blatantly lying about their backgrounds dozens of times. I’ve found CEOs running more than one company simultaneously without disclosing it. I’ve found officers and directors operating or governing public companies who are banned by the SEC from doing so. It’s unbelievable what people think they will get away with…and apparently sometimes do.”

This investor’s experience is definitely not an isolated case.  The quality of officers and directors in the small-cap ecosystem is highly disparate.  Consequently, companies should assume that investors are going to perform exhaustive diligence on key people.  For companies that are trying to hide or mischaracterize information, once the cat is out of the bag, word will spread quickly.

Mistake #5: Unhelpful IR PagesInvestors want to see pertinent information on investor relations website pages that they can’t easily access on their capital markets websites of choice (e.g., Bloomberg, Capital IQ, Yahoo Finance, etc.).  Investors typically get all of your stock quote information (i.e., chart, volume, 52-week range, market cap, etc.) on the financial websites they use every day.  While having the most basic quote information may be a necessity, having it be the main focus of your IR page is not suggested.

Here are 10 pieces of information investors would like to see in the investor relations section of your website.

  1. Recent, up to date investor presentations, presented in a way that’s easily accessed on any device.
  2. Links to recent investor calls, and transcripts, if possible.
  3. SEC filings – preferably on the site, so investors aren’t sent elsewhere.
  4. A fully diluted share count calculation.
  5. An updated, thorough cap table, with option and warrant strike prices, and term dates for any convertible instruments.
  6. The names of the company’s transfer agent, attorneys, auditors, and IR firm.
  7. A current rendering of insider stock ownership.
  8. Up to date insider trading information.
  9. A graphic depiction of which board members serve on which board committee.

The date, location, and time of the company’s next annual shareholder meeting.

Miscellaneous Website Do’s and Don’ts

  • Websites with an antiquated look/feel send a poor message to investors. Sites should be refreshed every few years, depending on current trends.
  • When your website isn’t designed to render seamlessly on mobile devices – or “responsively designed” – you’re telegraphing that your company is behind the curve.
  • When in doubt, keep it simple. When small-cap websites are overproduced it suggests that your company is likely overcompensating for something.
  • Syntax and formatting errors are inexcusable; they broadcast poor attention to detail.
  • Website blogs can be a terrific tool to communicate with employees, partners, customers, and investors, but not when blogs display a handful of entries from 3 years ago. Keep website blogs up to date, or consider taking them down.

[1] Websites serve multiple constituencies: (a) Employees access websites for information, training, and news updates, etc.; (b) Existing customers/partners use websites for updates regarding products, services, training, white papers, etc.; (c) Potential customers/partners access websites in order to comparison shop, if you will; (d) Competitors access web sites for any number of reasons; and (e) Relevant local, state, and/or federal regulators also access websites.  This article is focused exclusively upon investor expectations.

[2] If veteran investors can’t take the same test, and pass it 24 hours later, your website messaging has a similar problem.