A Deeper Dive on Test-the-Waters Meetings: Reflections from Our Recent IPO Webinar
Recently, I moderated our first quarterly Wall Street Revealed webinar with special guests Grant Miller, Managing Director, Head of Equity Capital Markets, Cowen and Company, and Matthew Perry, Portfolio Manager, BVF Partners, L.P.
While we covered a host of topics related to the webinar’s theme – “A View of the Current Healthcare IPO Market” – one of the meatiest parts of the discussion (and a topic that drew many questions from webinar participants) was on the definition, value and purpose of “test-the-waters” meetings.
These meetings are made possible as an outcome of the JOBS (Jumpstart Our Business Startups) Act, which – according to the Securities and Exchange Commission – permits an emerging growth company to engage in oral or written communications with potential investors that are qualified institutional buyers or institutions that are accredited investors, either prior to or following the date of filing of a registration statement. In short, private companies are now able to meet with potential investors before filing to go public. As Matthew Perry emphasized during our webinar, “I love test-the-waters meetings. Every single CEO, board member and management team should use them to know what their company’s IPO is going to be like well before the IPO is booked and filed.”
Following are four key takeaways from the webinar discussion that will help you make the most of test-the-waters meetings.
- First, test-the-waters meetings should be seen as a critical IR strategy for healthcare companies who hope to go public. Why? As Grant Miller explained during our webinar, mainly because each healthcare company is so unique. In this industry, this means a potential investor must evaluate each company rather than draw comparisons to another company. Every company is a one off, and thus, these meetings give institutions time to get to know you, to do their own homework and diligence, and to make an informed buying decision at the appropriate time. By meeting with you early on, potential investors can take time to decide whether or not they want to be long-term shareholders. In my opinion, more educated buying decisions lead to shareholders who are in it for the long haul.
- Second, think broadly about test-the-waters meetings. Some companies think these meetings should only be done right before you go on the road. Instead, expand your thoughts: Begin these meetings a year or two before you plan to go public. They can be a valuable part of a longer investor relations strategy, offering an ongoing opportunity to educate the institutional investment community. Just remember that you’ll have to kick into high gear and increase momentum (including the frequency and amount of meetings with prospective investors) as you get closer to your actual filing date.
- Third, don’t be afraid to ask for feedback during the meetings. Don’t view a meeting as all give and no take. Feel free to ask the potential future investor to tell you how they think about companies like yours. You’re not selling as you would in a road show; so there’s more opportunity for dialogue. As the meeting starts, ask: “What types of companies do you usually invest in? How familiar are you with biotechs? healthcare? this particular therapeutic area?” Answers gleaned will help you tailor your presentation and leave you better informed for future meetings. Then, as the meeting wraps up, explain that you’d welcome feedback on the fundamentals of the business and how they view your story.
- Fourth, be well prepared on all facets of your story before you enter a meeting. Your prospective investors are a smart and well informed audience. They will listen to what you are saying and take notes. Thus, the elements of your story should be clear and consistent. The points you make will likely be revisited the next time you walk through the door. Also, be prepared to address likely questions. Often the best part of the meeting is the dialogue generated by insightful questions.
While important, test-the-waters meetings are only one element for consideration by a company planning to go public. If it seems overwhelming to wade through all of the strategies and considerations, Westwicke can help. Be sure to check out the webinar replay for more information, and we urge you to contact us for further dialogue. We also plan to revisit the topic of the healthcare IPO market in future Wall Street Revealed webinars. More to come…
Mark co-founded Westwicke in 2006. Since then, Mark has managed the firm’s strategic direction and led Westwicke's medical technology and diagnostics practice. He has worked with a broad spectrum of companies in the healthcare sector. He has a BA in economics and computer science from Colgate University and an MBA from the Darden School.
Leave a Reply