As a friend of mine and seasoned capital markets participant and IR counselor says about microcap company success: “It takes a village.” It takes a village to propel a microcap public company to become a large and successful company with a substantially larger market capitalization. The village consists of every type of market participant from the buy side, sell side, retail, media, industry, advisors, directors, corporate partners and others. The formation and chronology of such village can often follow this path:
A sophisticated investor discovers a micro-cap public company “M,” likely due to investor’s involvement/experience in the industry or with its principals. The Investor identifies something it deems interesting and compelling about M, buys the stock and begins to share the idea with his/her circle of contacts. M is then introduced to an investor relations firm, which begins assisting company M to effectively translate its business into narrative and fact set that is both credible and also resonates with investors, including messaging, slide deck, press releases, filings, etc. While making calls, the IR firm calls a microcap/small cap fund manager he knows, who not only takes a position in the stock, but also introduces company M to several investors, analysts and sources of growth capital, both investment banks and strategic corporate investors. As this happens, M delivers improving, consecutive, quarterly operating results while also proactively addressing the inevitable “issues” that can and will arise along the way. M also begins its physical investor outreach – participating in 3rd party and company-sponsored conferences and conducting initial non-deal marketing efforts, fielding investor calls, to meet new investor prospects – with the potential for near term engagement and “long-lead” targets that are generally precluded from engaging in a stock until it is more mature in size, liquidity, credibility and perhaps exchange. Now the investment community visibility increases as does the volume and the value of the company begins to increase via an increase in the price of its stock. Volume is the fuel of price. Sentiment is the fuel of volume. Awareness is the fuel of sentiment. M remains vigilant in its efforts to provide clarity and transparency on its opportunities and challenges, and in so doing builds a base of credibility and trust that will tide it through the challenges that are certain to occur along the way. M then realizes that its needs to up-list to the NASDAQ or NYSE to substantially expand the breadth of investment sponsorship (as much as 80%) of the total available market of equity buyers. Guided by the investment advice of its village, including its advisors and board, M retains an investment bank and an advisor with expertise for up-listing. M successfully completes a simultaneous up-listing and capital raise and thereafter secures sell-side analyst coverage from the capital markets side of its investment banking firm or syndicate of firms. M works tirelessly to support the research coverage to ensure it rises above all the other research product in its sector and invests its time in marketing the research to support broader investment community visibility and engagement. With cash and an enhanced equity currency, M completes a meaningful acquisition that substantially expands its business scope, market cap and investor base and is well on its way in its progression to becoming a large and successful small cap or mid cap company. Fueled by the Village.
While the above is a very simple example, the reality is that the road to success of a micro-cap company is not linear but bumpy and circuitous; and no one person, fund, firm, or investment community visibility mechanism, creates the success of a micro cap company during its quest for success. There exists no one panacea. The management team, working in a highly collaborative fashion, with a plethora of Wall Street and Main Street contacts, over the period of years, is what is required. This process also has the potential to be perilous, within a very small community where good news and bad news travel very fast and missteps or worse can permanently damage an individual and ultimately the company and its stakeholders. Therefore it behooves all public company management to be open minded, maintain the highest credibility and integrity, demonstrate its appreciation to its advisors and investors and play nicely in the sandbox with everybody. Why? Because it takes a village.