In a previous blog post, I discussed why it is essential for companies heading into an IPO to carefully evaluate the sales teams of potential investment banking partners before selecting their banks. Their job is to sell your stock to institutional investors. Yet sometimes the distribution capabilities and differences of each bank is underappreciated.
In this installment, I want to explore the importance of maintaining a strong relationship with that sales force after the initial offering is complete, and to share some ideas about how to do it.
You may realize the importance of continuing to communicate with institutional investors after your IPO, but wonder why you can’t handle the assignment yourself. After all, you’re going to conduct regular conference calls and hit the road on occasion to meet with investors face to face. Do you really need additional help from an investment bank’s sales force?
That’s a good question. Management is certainly part of the equation, but you can’t do it all, even if provided with all of the time and resources in the world. Why? Well, consider that over time, institutional sales professionals become:
1. Trusted sources. The finest salespeople — through hard work, longevity, and reliability — actually become trusted sources of information among institutional investors. Over the course of many years of collaboration, they formulate a deep understanding of each investor’s profile, of what types of investments excite which investors, and what turns them off. You want advocates whom institutional investors genuinely trust and look to for input.
2. Color analysts. Long-tenured sales reps provide color to investors like no one else can. They’ve been regularly calling on a limited number of accounts for years. They know the portfolio managers, what they own, what they’re thinking about, and what they’re not thinking about. What is more, they can share their insights in real time with their clients so investors don’t have to wait for a quarterly call or some other upcoming event. That’s just the nature of their relationship.
3. Continuity keepers. Like professionals in other industries, bankers and analysts tend to move around throughout their careers, going from one firm to another and sometimes another. Dedicated tenured salespeople are in a great position to help you maintain relationships with institutional investors after an analyst has moved on because sales professionals will be able to leverage their long relationships to your advantage.
4. Intelligence gatherers. Communication between high-quality sales people and institutional investors is reciprocal. Sales pros can collect, process, and share with companies the opinions expressed to them by institutional investors. Say the investor thinks the company’s new growth plan is too aggressive but doesn’t say so on the conference call with others on the line. The sales person can get that viewpoint back to management, which in turn can address those concerns, one way or the other.
5. Providers of the personal touch. Salespeople get paid to have good relationships with their clients. Information and their good opinion of your company go a long way in helping them to do just that. You want that salesperson to be able to say to the portfolio manager: “I know the CEO; I know the CFO; I’ve traveled with them; I know their success rate regarding milestones; I know what’s important to them, and I give them my seal of approval.” That kind of personal assessment can and does make a difference. And when it does, both you and your salesperson win.
So how can you maintain a good relationship with sales? It’s all about spending time together and communicating effectively. And while there should be chances to socialize together, there are also opportunities to travel together that are directly business-related, such as non-deal road shows.
Perhaps managing this relationship is more easily understood by examining what it should not look like. A quality salesperson should be viewed as a valuable asset, not as an order taker who is there to carry your bags and otherwise be ignored.
I’ve seen it all before. Following a presentation to investors, company managers and the sales person hop into a car. If the meeting didn’t go as hoped, the managers turn verbally defensive or dismissive of other participants. They may just be blowing off steam, but they shouldn’t be doing so in front of the salesperson. Remember, at some point that portfolio manager is going to turn to the sales rep, and confidentially ask: “What’s the CEO or CFO really like?” After all, reps are a unique source for this information. Make sure they can give an honest answer that you’d want to hear.
Before joining Westwicke, I worked on the sell side for many, many years. I have plenty more to share about how to get the most out of this relationship. Don’t hesitate to reach out to us for a conversation.