Tips for Finding Effective Investor Relations Consultants

Tips for Finding Effective Investor Relations Consultants

There are 21,000 publicly traded companies in North America, each with its own approach to investor relations (IR).  To rise above the crowd, a company needs an effective IR strategy that ensures that shareholder value is recognized.

Small cap companies face many challenges in getting their story across to the investment community.  It is difficult for them to get attention from the financial media and almost impossible to obtain the kind of analyst coverage needed to attract institutional investors.  These problems are compounded by the fact that many lack the in-house resources and expertise needed to implement their own IR programs.  They are forced to hire outside consultants to fill the breach.  In the past, the larger IR firms did not pay much attention, but that has changed.

Due to the market decline and volatility over the recent years, companies of all sizes have slashed their IR budgets.  As a result, IR consultants have become increasingly hungry and have turned their attention to small cap companies they would normally ignore.  These companies are being bombarded with marketing inquiries from all types of IR consultants promising to build the number of shareholders, improve liquidity and increase share value.  Can these firms deliver on their promises?  Often, the answer is no.  They simply do not have the audience that they claim, and leave their clients  with little to no results.

Let’s face it; there are a lot of fly-by-night operations out there.  Even the good IR firms are finding it difficult to be effective under current market conditions.  They are more than willing to take a company’s cash or stock, but then are unable to produce any substantive net benefit for the company.  This is especially true for companies listed on the OTCBB and NQB (PinkSheets) exchanges.

A well executed IR program can pay off for both the company and its investors, boosting share value, liquidity and price to earnings ratio while expanding a company’s access to capital.  By helping a company build its shareholder base and holding onto them for the long term, effective investor relations can also decrease volatility and boost a company’s overall image.  Therefore choosing the right IR consultant is one of the most important decisions a company will make.  So, what should you look for in an IR firm?

Finding the right match with an IR firm will pay off in time, money, business performance.  Here are some qualities to look for:

1. Experience

The right firm for your company should have experience dealing with similar-size companies in your industry.  Ask for references and then spend the time to check them out.

1. 2. Technology

The Internet has revolutionized the IR industry.  Find a firm that can take full advantage of the many tools now available.  They should know how to use push/pull technologies, such as e-mail alerts and newsletters, interactive press releases, effective IR Web sites, webcasting and more.  Check out the company’s Alexa rating.  This rating ensures that people are actually going to the web site to read about your company.  Further, make sure to look for the US ranking.  Beware of anyone with a high ranking in India, as that typically can be fluffed by paying people out of India to click on your web site and links.  This is also a common practice when trying to get additional money out of Google ads.

1. Creativity

Small cap IR is all about your story and how it is delivered.  From press releases to annual reports and investor kits, an IR consultant must have the creative writing skills to turn your company’s story into an investment proposition that will get people’s attention.  Read examples of their past work and ask yourself, “Would I invest in that company?”

1. Chemistry

You will be working closely with this consultant for months or, if you are lucky, years.  Make sure the consultant has good chemistry with your staff and is comfortable with your company’s culture.  Beware of any promises or buying ratios.  No one can legitimately promise you any result in the market.  The best you can do is ensure that the visibility is there.  Further, what works for one company may not work for the next.  Don’t view the results of the last client, good or bad, as indicative that you will get the same results.  Like I said before, look for visibility.  No sense in putting up a big expensive billboard in the middle of nowhere!

1. Contacts

Look for savvy IR professionals with contacts with the media, market makers, and financial analysts in your industry.  The ability to pick up the phone and gain direct access to an important decision-maker can be very valuable.