The 3 ROI's to publicise when raising money and the power of PR for investor relations.

Hello and welcome to this episode of Speak PR. This is for everybody that's got value in their organization and is just looking for simple and cost-effective ways to communicate that to their stakeholders. My name is Jim James, and I've been running an international public relations company for over 25 years. I've also started companies on 3 continents. So I'm here to share with you tools and tips that I know will work. To help you get noticed. Now, I've been talking with a number of companies recently about raising money, and so I thought I would talk today about investor relations. So I'm going to talk about what needs to go into an investment document, investment memo, the role of public relations in investor relations, and how you can enhance your opportunities for raising money by having media coverage. So So welcome to this episode of Speak PR. So investor relations work, raising money for your company, whether it's as a startup, whether it's as a Series A, Series B, or even pre-IPO, takes a different kind of work to general public relations. Now, what's my experience in this? Well, I've got a few different cases where I've been involved. In one case in Singapore, I was actually acting for a company, a cosmetics company that went for an IPO. So I was involved in working with the CEO on the messaging, working on the development of the pink paper, as they call it, with the investment bankers and the lawyers in Singapore, and also on the investment analyst calls with the CEO as he went around talking to the fund managers to convince them of the merits of backing and underwriting his float, but also talking to the media, the business media, and the finance media in Southeast Asia and America and Europe and Australia, because he was raising money from all of these different markets. Now, I've also worked on raising money for my own business. So I had a business in Singapore called goevents.com, which I've mentioned before, and I raised half a million US dollars on a valuation of $9.8 million US dollars back in the day in 2011, and actually raised that money on the strength of a PowerPoint presentation. So I've worked between those big and small deals on a large number of investment documents with companies and helping them to get noticed in and amongst the finance community. So I want to share with that experience, just in case you're thinking about raising money, how to go about it. So there are a number of different items that we need to think about if we're doing a fundraising document. The first is that we must think about the kind of investor that we're looking for, because they're all actually looking for slightly different sectors and verticals. Sounds pretty obvious, but just like any other company, an investment company will have a portfolio based on a particular area of specialization. And they do this because obviously different specializations require different amounts of knowledge and competence on the investment manager side, but also for certainly for retail products, different retail products will have appeal to different investors, for example, for mining or for gas or for technology or for clean tech, for example. So the first thing to do is to look at which potential investors we're looking for, and they could be categorized as angel investors. These are people who have got money that are investing on their own account, and therefore they bring money but often bring expertise and networks. Then those are complemented by some venture capital companies, and then by some larger funds. For example, like 3i was in the, in the past, government UK money, or Temasek Holdings is in Singapore, Singapore government money. So different size funds have different motivations, but what they are all looking for is some ROI. Now, first ROI would be the return of their investment, and I give a credit here to Kevin Whelan of the Wealth Builders, who on their recent podcast talks about the different kinds of returns on investment that are important for potential investors. First of all, the return of investment: if people put money in, they want to make sure that they're. Going to get it back. Now, the earlier the stage of the investment, the bigger the risk. And therefore, my experience is that the investors are looking for a greater return because they are quite frankly going to invest in, say, 10 companies that are early stage. And the statistics say that a large number of those companies, 8 or 9, may fail in the first year. So the first of all, in the messaging that we're putting together in our documentation, we're saying return on investment is going to be coming back and how, or at least we're looking at how we're going to mitigate the risk that the investment may not come back. The second would be the return on the investment. So what would be the upside? What would be the lift in the investment? 10x or more. When I went to Sandy Hill Road, which is where the famous VCs live in San Francisco, to raise money for my internet business, and I went as part of a Singapore-sponsored tech ventures program, and I met with some Sandy Hill investors, and they, they were really looking at getting a minimum of 10, but they were also looking at the possibility of long-term an exit of greater magnitude when the company either listed or was sold. Less than 10, they said it's not worth their while. Another ROI, and again, this is credit to Kevin Whelan, is about the return on the relationship. How are the investors, and especially at the angel investor And where I worked, how are they going to make sure that they've got a relationship with you that they can trust? But also, are you going to introduce them to more deals? It can be quite an incestuous business, really. All the VCs and all the entrepreneurs know one another, and deals get shopped around. So how are they going to get a return on knowing you and your company? So there's, allied to that, reassurance on the individuals involved. Checking and giving advice and reassurance that the people involved, the investors and the management team, and anyone involved in the success of the business is trustworthy, in my experience, was key. So in any documentation that I put together for my clients, for myself, I would put in details about the individuals that are involved and their commitment to the business in terms of their investment. For example. Now, in terms of the document itself, what would we want to be saying? First of all, we need to be identifying why we're doing this business. What is the problem that we're solving? And most important, what is the competitive advantage of the product or the service that we're offering? It's not enough to say there's a market opportunity. It's actually not enough to say that you've got a problem-solving product or service, because then other people can come in, and often the second mover and not the first mover is the company that survives. If we look at the internet, Yahoo was the first search engine, but it's Google that dominated. So how do you have a source of competitive advantage? Is it a trademark? Is it an IP to the formula? Is it code that no one else can repeat? So the sustainable competitive advantage, of course, leads into the multiple on the exit. The next thing is looking at the margin and the revenue. So as a friend of mine who was an investment banker in Singapore said, really, you only are interested in 2 things. You're looking at the margin and the leverage. How much margin can be made, and how many times can that margin be made? Because that ultimately is going to drive the profits. So what is going to be the cost of production? What is going to be the sale price, and how easily can you defend that margin? And then how many people, companies? Are going to buy that? What is the scale of the issue or the market that you're addressing? Another thing then to look at from the investor's point of view is how does your product fit into their portfolio? Because one aspect of what they're looking for is the, the absolute return on your business, but another can be that they've got a portfolio of companies and your product or service can somehow add value to their other businesses. So I had a search engine, for example, and the company I sold some of my equity to had some other digital platforms, and the idea was to connect the content together to create a greater offering to consumers. Now, if we then create the investment memo, we've got the introduction, we've got the market opportunity, then we need to talk about how much money We're raising. The old rule of thumb is to think about how much you need and double it, because it's easy to get through it. So how much money is being raised, and and crucially, what for? My experience has been that putting a general round number—one million, two million, three million—is not that convincing. What the investors want to see is a line by line, almost an accountant's. View of what the money is going to be spent for, which makes sense because they're going to be spending their money. They want to know what it's going to be used for and how it's going to increase the valuation of the business. The next part, of course, is when the money is going to be needed, because it's possible to get money in tranches. And what I did was I got a first drawdown of, of quarter of a million, and then 6 months later, another quarter of a million. And you can do this because if you take all the money upfront at one valuation, you're diluting your equity, maybe more than you need to. So it's possible to have some milestones in the business plan. And if you reach those milestones, the valuation on the business can increase, and then funds can come into the business, but at a higher, at a higher price. So it's worth thinking about the timing and what you're going to do with the time and the money to increase the value in the business. Another aspect then is the market validation. Which other companies like yours, but that cannot take your business, validate the business that you're saying you can build? So are there other companies in other sectors Or, for example, other geographies that could be showing that what you're proposing is a good business idea. And of course, if you can find, for example, companies that are in sectors or segments that are complementary and not competitive, this can lay the groundwork for the exit strategy. Now, many business plans that I've seen don't include the business strategy. People talk about raising money. And what they want to spend it on, but what they don't think about is the exit. And as one speaker once talked about, the analogy of going into a large room, you should always look where the fire exits are. If there's only one way in and out of a room, it's not a good room to be in. It's not safe. So you need to be thinking about where are the fire exits for your business? Where are the exits for you and for the investors to get in and out of the business. Because if the business doesn't go well, or the business is going well, but not everybody you've got invested turns out to be the right investor, you need to have the exits already marked so that everybody knows what the procedures would be for getting people out of the building or out of the business. Now, this is where next the media relations and the PR coverage really comes into its own. Because the value of articles that are written by third-party editors is to give credibility to the story. It's a testimonial that the business idea that you've got, or that you as an individual entrepreneur have got, some credibility. I was working with a number of founders over the years, and it was their prior experience and their prior media coverage that would tip the balance because the investor is looking at this person, unknown, maybe just coming into the deal. But if they read a magazine, they read an article, they listen to a podcast or see somebody on television, there's a validation that's taken place by that third-party media that creates a level of reassurance for the investor. So being seen in the media, I would suggest, can be a key part of your investor relations and your investor relations preparation strategy. Try and get into some media, big or small, because it creates some context for you and your business. So investor relations, once you've raised the money, it doesn't finish there and then. Because what you want to do is to keep those investors happy. What I did with my investors is I wrote a weekly summary of the business. We have different categories. We had sales, marketing, technology development, people, and others. So I mean, it was called others. It's not that I can't remember. It was actually called others. So just things that cropped up. So Having a weekly investor memo is important because it saves you time and it reassures the investors what's going on. I did this because after about a month, I got tired of answering general emails and inquiries from the investors. And it's understandable, they're getting nervous, or in many cases, they don't even understand quite what the business is. So to reassure them, I created an investor memo which they got weekly. And what that meant was that they got reassured, but also that I was able to start to create a management log for the business, which showed other potential investors how I was treating the money for my investors. If you think about it, earnings calls, which take place within listed companies, are just the same thing. They're a scheduled set-piece communication with investors so that the— and the analysts— so that those people can take away the, the, the news and the views of the CEO and the CFO and whoever else is involved and give reassurance to the asset managers, to the fund managers, to the pension managers, and so on. That same work can be done for a small company as it's being done for a big company, and really well worth its weight in gold. And because fundraising is often not done once but repeatedly, it's important to keep the existing investors happy, because if they're not happy when you try and raise more money, if they don't want to invest a second time as a tag-along, right? then getting money from other investors can be even harder because they want to know why your current investors are not interested to continue investing in your business. So from a relationship perspective, investor relations can actually become one of the most important roles that you play as the CEO or founder of a business, because without that mission-critical vote by your current investors, no matter how big or small, it can cause a real bottleneck and a roadblock for raising future funds. So this is just a very quick and simple view at investor relations work, coming off the back of having had now 3 conversations in 1 week with entrepreneurs who are looking at raising money. And talking to me about their own positioning as a company, but also the documentation that they're going to need, and also about the publicity that would come as a result of having their public relations work done. So thank you for listening to this episode of Speak PR, and if I can answer any other questions, do reach out to me at jim@eastwestpr.com. Do subscribe to our podcast, share it if you find it useful, share it with other people. Subscribe to our weekly newsletter at eastwestpr.com, and even check out our Speak PR Mastermind, which we're launching soon and is also listed at the eastwestpr.com website. So until we meet again, my name is Jim James. Thank you once again for listening. You've been listening to the Speak PR podcast, and until we meet again, I wish you the best of health, that you have a profitable business, and that if you're raising funds You look after all those relationships and that you're successful in getting all the money you need. So do keep communicating about your success.