Public Company Time Crunch

Posted by on September 23rd, 2015


At KCSA, many of our clients are micro- and small-cap companies. They often have a product or service that’s just come to market. Usually, the companies are pre-revenue or have just begun to generate sales. In a sense, they resemble start-ups.

The difference is your average venture-backed start-up in Silicon Valley doesn’t have to deal with the blaring glare that comes with being a public company. They don’t have to worry about the daily gyrations of their stock price or how the market will react to their quarterly updates.

Or lack of an update. The one thing both public and private companies can’t predict is timing—when a new contract win or strategic partnership will close. Venture capitalists make investments with a long-term timeframe in mind and don’t worry about these things. But for equity investors, even the buy-and-hold ones, these types of milestones are incredibly important. They serve as catalysts central to their thesis for buying a particular stock.

Time and again, I’ve seen investors lose patience and hope as a company fails to convert potential deals in their pipeline into revenue. I’ve witnessed investors tuning into quarterly conference calls, hoping for good news, only to find out that nothing’s changed.

Ultimately, these types of situations are challenging for IR professionals. We want our clients to be open and transparent with investors. We want them to hold quarterly calls. We want them to meet with institutional investors on non-deal roadshows and at conferences. But we also need to weigh that against the benefits of suggesting that our clients sit on their hands.

In August, prominent law firm Wachtell, Lipton, Rosen & Katz called on the SEC to end quarterly reporting, arguing that such a move would allow companies and investors to focus more on long-term goals and performance.

It’s an interesting proposal, albeit one that likely won’t be adopted anytime soon. In the interim, companies must work to articulate long-term goals to the community, set reasonable expectations and make sure they provide regular updates on their progress.