Golden Rule for Start-Ups: Keep Investors Informed HOW DO YOU MANAGE?

(Apr 16, 11:20 AM)

By Roxana Popescu

It almost doesn't matter where they are or what sector they are in: Start-up companies are hot. The number of initial public offerings almost doubled over the past two years and the volume of global transactions hit $167 billion in 2005, according to a new report by Ernst & Young. A key to their early survival and subsequent success is how well these start-ups handle investor relations even when the investors are limited to the founder's parents and in-laws.

"Investors want to hear bad news," said Guy Nohra, general partner of Alta Partners, a venture capital firm in San Francisco. "They don't want surprises." Laws regulating communication between public companies and their shareholders take out much of the guesswork. In the United States, the Securities and Exchange Commission demands quarterly reports, annual statements, and fair and timely disclosure of significant movements along the way. Regulations are similar in Europe and Asia, with requirements including general meetings, audited statements, financial reports and the dissemination of information that could affect share prices.

In the wake of a series of communication fiascoes at Enron, WorldCom, and Adelphia, public investors were the last to hear what happened in the boardroom regulations have become even more stringent. Private start-ups are subject to fewer rules and a lot more uncertainty, but that does not exempt them from their responsibility to keep investors informed, consultants said. Particularly for smaller or younger companies, which may or may not be public, learning to manage shareholder expectations while meeting their demands for information all while trying to get a company off the ground can be tricky. "Some aspects are science, but a big piece of it is an art," Nohra said. "The science is board meetings: what you're spending, why it's being spent, and where. That's the basis of what investors want to know." A primary objective is maintaining a steady flow of information, beyond quarterly financial reports, experts said. "Any company that wants to communicate with its shareholders properly should fill in those gaps," said Paul Kondakos, vice president of operations for Agora, an investor relations consulting firm. "There's a lot of collateral material that you can put together for your shareholders to ensure that they don't just know the basics, but that they get to know the nuances of the company, know how it's progressing on a week-to-week and month- to-month basis."

For its clients, Agora proposes a combination of question-answer sessions with decision makers, easy access to management, Webcasts with feature articles and updates, interviews with chief executives and industry reports to put company development in context. It recommends that company forecasts go out 90 days, "a reasonable outlook," Kondakos said. It charges $2,500 to $3,000 a month for its services.

If cut-and-dry communication is the science, the finesse rests in how a company cultivates its image along those high and low points, how it presents developments to current and potential investors, and how credible its forecasts appear. The art of managing investor expectations starts even before a company goes public, said Steven Dickman, chief executive of CBT Advisors, a biotechnology consulting firm in Cambridge, Massachusetts. If management has done its job well, which includes hiring an investor relations person, he said, "you have actually created the investors' perception about your company. You've done it by delivering the facts in a very forthright and extremely timely manner."

That forthrightness can and should come through even in times of uncertainty. "It's possible, for example, to prepare shareholders in a completely legal and above-board way to expect the company to make major moves, to be flexible and not rigid," Dickman said. "Then when something happens that wasn't expected, you've managed to create a more receptive environment for that piece of news."

For more ideas and an overview of British and some European investor relations issues, the London Stock Exchange has a brief guide, available on its Web site, www.londonstockexchange.com.

Whatever approach a company chooses to take, Kondakos recalled a basic tenet of human interactions: "You're treating shareholders as you'd want to be treated yourself."

(c) 2006 International Herald Tribune. Provided by ProQuest Information and Learning. All rights Reserved.