Why the Investor Meeting You Just Had…Didn’t Go As Well As You Think (Part 2 of 2)11 minute read
This is “Part 2” of a two-part series: a buy-side perspective on why investor meetings chronically falter. Read Part 1 HERE
Thousands of small-cap investor meetings happen annually. CEOs, investment bankers, and IR representatives often think meetings went great. Investors routinely think the opposite. What accounts for this disconnect?
Part 1 discussed how institutional investors react to common, albeit poorly understood, management missteps during investor meetings. Let’s continue below with other issues that conspire to turn off investors.
The Ubiquitous PowerPoint Presentation
Some institutional investors find PowerPoint presentations helpful, others loathe them. All agree that an inordinate number of small-cap investor decks are sufficient, in and of themselves, to make companies unattractive right out of the gate. Since this happens every day, this seems to be an area where companies are either getting good advice and not taking it, or they are getting poor advice.
Length: Smart investors know that the length of a PowerPoint presentation is often inversely proportional to the quality of the company. Aim for less than 20 slides. Precedent matters, and the number of great small-cap companies with ~ 25+ page decks is not high.
Keep it simple: Great companies do not rely on multimedia pyrotechnics, so save the time and money and leave out complex animations and incomprehensible infographics. Investors know that companies with overproduced PowerPoint presentations are often compensating for poor fundamentals. High quality companies use basic slides and text with common fonts in common colors. When in doubt, keep it simple and stick to the basics.
Fewer words: Small-cap companies are risky. The more complex they are, the more risky they seem to investors. Most great small-cap companies aren’t hard to explain; complicated, dense, wordy slides aren’t impressive to institutional investors – the opposite is true.
Information weighting: Executive bios, market data, service/product description, intellectual property, strategy, risks, competitors, financials, and use of proceeds slides should all be evenly distributed. When key information isn’t equally weighted (e.g., 35%+ of the slides are about the market opportunity), investors know there is a reason why…and it’s never good.
Spelling, syntax, and formatting: Being a public company is all about fastidious attention to detail. If companies can’t sufficiently master the details of a short presentation and have consistent capitalization, investors have the same reaction: “How on earth is their financial reporting going to be accurate?” It’s worth adding that this applies to associated IR firms and investment banks as well; these easily avoidable errors reflect badly on everyone involved in the process (and investors absolutely take note). Spelling, syntax, and formatting problems might seem frivolous to busy executives, but they speak volumes to investors.
Back-up: Technology has a way of not working at inopportune times. Every investor has been in a meeting where a CEO’s laptop just won’t boot up. When that CEO becomes visibly frazzled at the notion of having to present their company without slides (very common, by the way), most of the confidence in the CEO is going to evaporate. Safety is the best policy: bring a hard copy, memory stick, or alternative device to every investor meeting. Or, even better, be prepared to present the company the “old-fashioned” way.
Accessibility: Investors marvel at why so many companies make their investor presentations so challenging to find on their websites. Always follow the two-click rule for information investors most want: the information should never be more than two-clicks away from the company’s home page. When investors have to try hard to find basic information, it sends a bad message.
Executive’s Backgrounds: Why Websites Truly Matter
Savvy investors are forensic observers: they keep turning over rocks until they can’t find any more to upend. They are also students of precedent and history. One thing they’ve learned over time is that, for example, a CEO is considerably more impactful on the success or failure of a $50 million company than he/she is on the success or failure of a $50 billion company. Investors bet on “jockeys” more than they bet on “horses.”
The principal way for investors to begin to understand more about the CEOs background in advance of meeting with them is by looking at their professional bios on the company website, LinkedIn, and in securities filings. What’s in those bios (or not in there, as it were) actually goes a long way towards determining the outcome of investor meetings, so it’s critical that your bio not make common, impactful mistakes.
Meeting is over before it starts
Most small-cap CEOs spend a lot of time honing and editing investor PowerPoint presentations, but only a fraction of time on their bios. They’re burnishing the horse, and ignoring the jockey. The problem with that approach is that if an investor’s review of your website/SEC bio reveals problems, then the first investor meeting is partially over before it even starts. It’s hard to know what’s more astonishing: (1) how many bios raise red flags; or (2) how many CEOs, board members, and service providers don’t appreciate this.
Missing company names and job titles: Investors know that the best risk adjusted return is often garnered by betting on CEOs who have demonstrated increasing amounts of responsibility and success in their careers. When bios omit company names and precise job titles, investors are incapable of developing verifiable career snapshots. All named executive officers should have the formal titles and complete company names of their employers for at least the preceding 15 years. When titles and company are missing, investors will assume the obfuscation is purposeful.
Inconsistencies: The good news for many companies is the Internet is a rich source of information for investors. It’s also the bad news, particularly for CEOs who have poor attention to detail, or who have something to hide. It’s common for a website bio to say one thing, and bios on SEC filings, LinkedIn, or other websites (e.g., non-profit boards, etc.), to say quite different things. Investors are going to find all of the different bios, and, where these bios are materially disparate, red flags will be raised. Needless to say, investors are going to be highly skeptical of a CEO with multiple conflicting bios prior to ever meeting with them.
Just the facts: Bios that are limited to facts are the most likely to inspire confidence in institutional investors. When in doubt, leave out all modifiers and hyperbole. When a CEO describes himself or herself as a “visionary,” or as a “successful, courageous risk taker,” small-cap investors are programmed to stay away. Stick to facts – 100 percent of the time – and let investors draw their own conclusions. There is a reason you can’t find a Fortune 500 CEO bio with an adjective.
Education references: There are two principal ways that small-cap CEO bios fall short in this regard: both are common, and both are red flags.
- Education references are not optional in CEO bios; credentials (or lack thereof) will be parsed by investors and will be incorporated in their assessments. If Tim Cook still includes his education in his Apple bio…then you should as well.
- A surprising number of small-cap CEOs feel that they can augment otherwise less impressive academic qualifications by exclusively referencing executive coursework or certificate programs at premier universities like Harvard. There is, of course, nothing wrong with these programs (many of which are terrific), but they do not replace traditional education degrees and should never be represented as such.
Religious affiliations or family/recreation, etc.: Contrary to what many service providers believe, the majority of institutional investors don’t care about a CEO’s religion, nonprofit affiliations, or what they do in their spare time. And even if they do, they likely don’t want to see any of those things referenced in a formal business bio.
Tim Cook’s Bio
The bio of every small-cap named executive officer and board member should track the format of Tim Cook’s bio. Take notice of what’s not contained as much as what is.
“Tim Cook is the CEO of Apple and serves on its Board of Directors.
Before being named CEO in August 2011, Tim was Apple’s Chief Operating Officer and was responsible for all of the company’s worldwide sales and operations, including end-to-end management of Apple’s supply chain, sales activities, and service and support in all markets and countries. He also headed Apple’s Macintosh division and played a key role in the continued development of strategic reseller and supplier relationships, ensuring flexibility in response to an increasingly demanding marketplace.
Prior to joining Apple, Tim was vice president of Corporate Materials for Compaq and was responsible for procuring and managing all of Compaq’s product inventory.
Previous to his work at Compaq, Tim was the chief operating officer of the Reseller Division at Intelligent Electronics.
Tim also spent 12 years with IBM, most recently as director of North American Fulfillment where he led manufacturing and distribution functions for IBM’s Personal Computer Company in North and Latin America.
Tim earned an MBA from Duke University, where he was a Fuqua Scholar, and a Bachelor of Science degree in Industrial Engineering from Auburn University.”