Though many small-cap institutional investors are loath to admit it, they rarely know as much about the relevant science and technology as the CEOs who operate technical companies. Consequently, small-cap life science and technology websites, press releases, and investor presentations are often understood by a fraction of their intended audiences.
Fortunately, officers and directors needn’t rely on service providers to assess the efficacy of their storytelling. Instead they can simply undertake the so-called “Cocktail Party” test on their own, in three easy steps during the next holiday party, soccer game, or airplane flight, etc.
- Find an average “Joe” or “Josephine” businessperson, who has never heard of your company.
- Show them the “above the fold” portion of your website, or a copy of the “about us” language from one of your press releases for approximately 45 seconds, to simulate how long the typical investor will spend perusing the same.
- Wait about five minutes – to ensure that they are not just parroting back what they read – and ask them to explain to you in their own words what your company does, and why it’s interesting.
If your company’s storytelling acumen is high, your test subjects will quickly and accurately grasp the zeitgeist of your company. If they struggle, it’s likely that lots of small-cap investors – many of whom are generalists – don’t sufficiently understand what your company does either.
One way to dramatically increase messaging effectiveness is through website videos. Notwithstanding the fact that in excess of five billion videos are watched daily on YouTube, a surprising number of small-cap companies don’t have an “about us” video easily accessible on the home page of their corporate websites. This is a big mistake; a two-minute, professionally-produced, easy-to-understand video can pay for itself almost immediately.
From the perspective of a former institutional investor whose firm advises scores of small-cap boards, there are two things most technology and life science CEOs don’t sufficiently appreciate about the buy-side:
- Most fund managers won’t stop you mid-presentation to tell you they don’t understand what you’re talking about – they will just nod, smile, and tune you out.
- If an investor doesn’t sufficiently understand what your company does to be able to describe it fluently in their own words to their investment committee colleagues, then that fund is either not going to invest, or they will invest in much smaller increments than they otherwise might. Both are bad results for your shareholders.
To be clear, there is absolutely a proper time and place for life science and technology companies to communicate granularly about their businesses. But the fastest path for otherwise high-performing, technical small-cap companies to a premium valuation is to start out communicating as simply as possible.
Adam J. Epstein advises the boards of pre-IPO and small-cap companies through his firm, Third Creek Advisors, LLC. Prior to founding Third Creek, Epstein co-founded Enable Capital Management, LLC; Enable’s special situation hedge funds invested in more than 500 small-cap financings. Epstein is the author of The Perfect Corporate Board: A Handbook for Mastering the Unique Challenges of Small-Cap Companies (McGraw Hill, 2012), he’s a teaching fellow at the Nasdaq Entrepreneurial Center, and he’s on the editorial advisory board of Small-Cap Institute, Inc.
The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular company, industry or security mentioned herein and nothing contained herein should be construed as legal advice.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.