In any given year, dozens of publicly traded companies move to Nasdaq and NYSE from other trading venues in the United States; i.e., they “uplist.”  Uplisting can be a transformative event for a publicly traded company for all the same reasons a traditional IPO can be.  But every CEO who has succeeded with their migration to an exchange will attest that it is a multi-year minefield of risks.

Unfortunately, the majority of uplisted companies don’t successfully navigate those risks, and end up having tumultuous and/or short tenures being exchange-listed.^[1]  Given the significant failure rate, those companies recently uplisted (or considering an uplisting) should pay attention to the path taken by those who have been successful post-uplist.

Underpromising and overdelivering

Many uplisted companies feel the need to make a “splash” and attract investor attention by forecasting dramatic financial results and/or product introductions. But whatever attention is brought by those predictions in the near-term pales in comparison to the number of existing and prospective investors who are repelled when the company fails to live up to what they promised. Investors often go out of their way to point out the shortfall to other investors.

Overpromising and underdelivering is frankly the death knell of any small-cap company, but it’s especially punishing for uplisted companies because they are often unknown and lack institutional sponsorship.  When uplisted companies start out their lives on Nasdaq or NYSE by failing to achieve the expectations they’ve set for the market, it’s nearly impossible for them to recover.

Here are some ways uplisted companies have succeeded with respect to setting expectations:

• Forget what you’re being advised; if your company lacks sufficient visibility to provide quarterly or annual financial guidance – don’t provide it. No guidance is much better than guidance which is unachievable.
• When in doubt, report good news after it has happened, versus engaging in public “arm-waiving” about what’s to come. Great public companies focus on delivering value, not hype.
• Reserve press releases for material news; if you teach investors that your company issues press releases for any reason, they are going to pay less attention when your company actually has seminal news.
• Prior to publicly setting any expectations about key operating metrics, make sure your company has at least several quarters of exceeding relevant internal targets. In an ideal world, your company wouldn’t consider uplisting unless/until your internal forecasting achieves this efficacy benchmark.

Act, look & sound the part

Every experienced small-cap investor has learned the hard way that there are “real public companies,” and then there are “private companies that happen to have ticker symbols.”  In other words: all Nasdaq and NYSE companies are not created equal in the eyes of discerning investors.  Uplisted companies are subject to heightened scrutiny in this regard, since they didn’t travel the typical path to a major exchange.

Great public companies communicate thoroughly and carefully, they demonstrate excruciating attention to detail, and they eschew hyperbole in favor of delivering – and accurately reporting – results.

Some key focus areas:

• The first place investors will go to assess your company is your corporate website. Before uplisting, make sure your website is modeled after some exchange-listed companies in your industry with market capitalizations above $500 million.  Pay special attention to the clarity of their “About Us” content, and also on the format, tone, and thoroughness of their executive and director bios.  Every experienced investor will tell you that they regularly read officer/director bios and, upon seeing red flags, stop their diligence immediately. 
• Prior to uplisting, attend some investor conferences where exchange-listed industry peers with market caps above $500 million are presenting. Pay particular attention to the length, tone, and quality of their slide presentations, as well as the preparedness and demeanor of the CEOs/CFOs.
• CEOs and CFOs of uplisted companies, in particular, need to speak as if their companies depend upon it – because they do. Experienced small-cap investors are betting on “jockeys,” not “horses,” and great jockeys speak carefully, conservatively, and respectfully.  Ask any company that has successfully uplisted, and their executives will concur that they weren’t prepared for the communications skills that were required.
• If the CEO of your company hasn’t done appreciable amounts of public speaking, they should consider joining the local affiliate of Toastmasters during the year before the expected uplisting.

Sell stock to the right audience

Most companies that uplist have predominantly retail shareholder bases (i.e., their investors are mostly nonprofessional investors).  Most companies that uplist also have stocks that trade less than $250,000 of stock per day.[2]   For reasons we cover in this piece about trading volume, most institutional investors (i.e., professional investors) are mathematically foreclosed from buying stocks that trade less than $250,000 per day, whether they like your company or not.

Unfortunately, due to either ignorance or disingenuous advice, myriad uplisted companies with daily trading volume less than $250,000 waste enormous amounts of time and money endlessly meeting around the country with institutional investors, who simply can’t buy their stock – and won’t. 

Persuading investors to buy stock in a newly uplisted company is challenging enough, so don’t make it harder – and infinitely more expensive – by meeting with the wrong audience.  No matter what your investor relations professionals are advising, uplisted companies that don’t imminently require capital infusions and trade less than $250,000 dollars per day should be focused on telling their stories to retail investors (and possibly some very small funds and family offices as daily dollar volume begins to average more than $200,000).

Conclusion

While it is of course a true statement that uplisting is a transaction, it is an enormous mistake for executives, their teams, and their shareholders to view uplisting as a one-day event.  Successfully uplisting requires months of planning, and then very nearly perfect execution post-transaction to become a successful exchange listed company.  Service providers and advisors who glorify/simplify the process all have one thing in common: they get paid on, or before, the day your company lists on Nasdaq or NYSE, and they have no stake whatsoever in how your company performs as an exchange listed company.

[1] There is an entire ecosystem of service providers, who make their living advising non-exchange listed companies how to uplist.  These service providers have a conflict of interest that must be understood: if your company doesn’t uplist, they don’t get paid.  Accordingly, some percentage of said service providers paint an unduly rosy portrait of uplisting. Always cross-check with other market participants as to the expected value of uplisting.

[2] Daily dollar trading volume is the product of the number of shares that trade each day multiplied by the median stock price during a given trading day.