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Five Guiding Principles of an Effective IR Strategy

A conversation with The Blueshirt Group on building relationships and managing investor expectations

Investor relations (“IR”) remains a mystery for many public and private company leaders. The art and science of building buy-side and sell-side relationships, developing a compelling business narrative, communicating with investors, and (occasionally) quelling panic are critical for managing expectations and building long-term credibility pre- and post-IPO. 

We invited two IPO veterans – Alex Wellins (co-founder of The Blueshirt Group with two decades of IR experience) and Rob Krolik (former CFO of Yelp, VC, board member, and advisor) – to share insights with CFOs in The Circle on how to craft an effective IR strategy in any market.

Here are five foundational IR principles that they recommended for a company on the path to going public:

#1- Make IR an Early Priority

Too many companies put off IR efforts until the last few months of the IPO on-ramp process, but starting to meet with potential IPO investors around a year beforehand can be of great benefit to a company, said Alex.

“If I could distill the essence of IR into two words, it’s ‘managing expectations.’ That process starts well before the IPO itself – building credibility with public investors and research analysts, when you draft your S-1, and the development of your beat-and-raise model.” – Alex Wellins, Co-founder & Managing Partner of The Blueshirt Group

More prominent institutional investors will want to meet with company leaders at least three or four times before the IPO roadshow. “Investors are buying CFOs and CEOs as much as they’re buying stock in the company. In most cases, they are much less likely to buy the IPO if they haven’t met you before,” said Alex. 

Developing a holistic IR strategy early is also critical, added Rob. “Start thinking through what information and metrics you’re going to share and, more importantly, not going to share. When talking with investors, there needs to be agreement and consistency between the CEO and CFO on what those communication points will be.”

#2 Choose and Build Relationships with the Right Analysts

The equity research analysts that are on your IPO cover are an important IR channel. “The analysts’ job is to highlight companies they think will do well to their investor community,” said Rob. “Especially with the analysts from the lead bank in your syndicate, you want to equip them with the language, and metrics that will help tell your story the right way.”

Be selective when choosing analysts to cover your IPO, added Alex and Rob. “The banks in your syndicate will supply a list of analysts,” said Alex. “But you want to find the right analysts that understand your story and can communicate it effectively through the research they publish pre- and post-IPO.” Identifying and getting to know those analysts 12-18 months out from the IPO can give you more time to test and get feedback on your IPO story and leverage them for greater exposure through banking conferences and pre-IPO research reports.

If you need help determining who or what to look for in a research analyst, Rob recommended reaching out to other public company CFOs in your network to identify the analysts with whom they had a positive experience.  

#3 Underpromise, Overdeliver

To maintain strong buy-side and sell-side relationships, the CFO needs credibility. CFOs should be mindful that credibility can get eroded if a company continuously underperforms expectations.

“The CFO mantra should always be to underpromise and overdeliver. If you continuously miss guidance or estimates, you’ll lose credibility with analysts and investors. Whether you’re private or public, it’s the CFO that’s going to look bad when that happens.” – Rob Krolik, former CFO of Yelp

If you’re anticipating market volatility, cutting estimates and resetting investor expectations may be a necessary measure. “Talk to your board and CEO to get a baseline assumption for what performance will look like in the coming year,” said Rob. “Keep in mind that whatever targets or future plans you share with investors will likely be written down somewhere and referenced at some point in the future.”

If necessary, cut estimates deeper the first time to avoid missing guidance more than once, said Alex. “If you continually miss guidance, you may find yourself in the penalty box and it can take well over a year to get out. Ultimately investors are buying, and analysts are supporting, the management team so if you come to them every quarter and keep missing, after a while, they’re just going to tune you out.”

#4 Plan for the Long-Term

Market volatility can quickly change investor expectations from “growth at all costs” to wanting to see more conservative cash management. The challenge for a CFO is that market conditions and investor sentiment will be almost impossible to predict, whether you’re three years or three months out from an IPO.

A more pragmatic IR principle for CFOs is to maintain a defensible long-term narrative. “Stay focused on your plan for the next three to five years,” said Rob. “As best as you can, ignore the market because your stock price is not necessarily reflective of your value.” 

Even if you have to make significant headcount reductions, investors may not panic as long as they’re not impacting long-term growth. “As we approach the end of 2022, many public companies are doing a headcount cutback – around 9-15% on average,” said Alex. “Investors will be most concerned with whether or not those cutbacks will impact customer growth, the technical product roadmap, or long-term growth targets. Once you start having to make those bigger structural resets, that’s when you’re at risk of losing credibility.”

#5 Consider Bringing in External IR Support

The biggest takeaway from the discussion was that IR is a complex and highly-nuanced discipline. A VP or Head of Investor Relations can be a valuable hire, but only when there is enough activity on the buy-side and sell-side to warrant full-time employment. In the meantime, CFOs might consider hiring an external IR firm to help them develop their IR strategy and facilitate intros on the buy-side and sell-side. A good IR firm can help your internal finance team build the muscles and infrastructure that will be needed to satisfy public company reporting requirements as well as hone the KPIs that investors will use to gauge success in the public markets.

The primary benefit of an IR firm is the broader market perspective they can offer. “Firms like Blueshirt are constantly advising and supporting companies at different stages of the pre-and post-IPO process,” said Rob. “Why wouldn’t you leverage that expertise when drafting the S-1, meeting with investors, or prepping for roadshows and earnings releases?”

The Takeaway:

While IR starts to become more of an immediate necessity towards the final six months of IPO preparation, having a holistic strategy and building analyst and investor relationships early can be a powerful unlock. Keep your narrative long-term focused and determine what metrics and information you want to share with investors with the CEO and board.

If you’re a CFO looking to connect and exchange insights with other growth-stage leaders, apply to join The Circle. Our year-round programming also includes a “Meet the Buyside” session, where Circle members can connect with institutional investors within our network.

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