Investors Make Decisions By Asking These 6 Questions
In the 30-40 minutes that a typical investor meeting lasts, you need to accomplish several critically important goals. You must:
• Provide your audience with the investment merits of your company
• Answer their questions
• Inspire them to do more research into your market opportunity
If you fail to achieve these objectives, if the investor leaves the meeting without sufficient information and inspiration, then you’ve effectively wasted everyone’s time, including your own.
Understanding even some part of the investor’s decision-making process can help you better align your message with what the investor needs to hear in order to come to an investment decision. Of course, each investor’s decision-making process is unique. However, there are a number of things that every investor must understand before completing diligence and arriving at an investment decision.
There are six questions that investors will ask about you and your market opportunity before making an investment decision. It’s imperative that you answer each one of these questions when meeting with them.
1. What’s the history of the company?
Investors want to be a part of something big. They want to see a management team that is passionate. Understanding the history of a company is an important checkmark for investors, and it can provide them with context regarding the business model, scientific hypotheses, and the business opportunity.
As a result, every company needs an interesting foundational story to share with investors about why they exist.
Biotech companies generally do this very well, which makes sense given they can be years away from producing key data or revenue. The story has to inspire in the absence of these kinds of results.
Remember: Investors look at hundreds of ideas. What makes your company stand out?
2. How strong is the leadership?
Investors want to see if the leadership team has prior executive-level experience, if they have previously led a public company, and if they have a track record of hitting important milestones.
Executives can also establish or reinforce credibility by highlighting a previous encounter that proved successful. Perhaps that’s finding a common involvement in another company where the investor did well. Or maybe it’s some other common connections in the industry.
Simply put, the investor is looking for some way of connecting the leadership team to something or someone they trust or know. So if a CEO has been successful in a prior company and has made its investor money in the past, make sure to spotlight that experience.
3. What is the competitive landscape?
This is an important question to gauge the opportunity and determine if a company has a good understanding of its market and competitive threats.
I worry when a management team tells investors they have no competition. While investors love monopolies as much as the next capitalist, a competitor-free market is rare. Investors see hundreds of companies like yours. It’s even possible they have a more thorough understanding of the competitive landscape than you do. As a company, it’s important to have a complete picture of your market and acknowledge competitors.
Remember: This is a perfect opportunity to differentiate your company from the pack.
4. How large is the market opportunity?
Investors need to formulate an independent assessment of the market opportunity to ultimately determine potential upside. Analysts on both the sell side and buy side create financial models outlining projected performance probabilities — everything from product revenue to the tiniest expenses.
Even for companies with no revenue, estimates must be established as some basis for valuation. Consequently, company executives need to think through the market opportunity with the same laser-like focus that the investor will.
Know the details and be ready to explain assumptions to help analysts work through this arduous but mandatory process.
5. Is it necessary to own the stock now?
An investor must find the best opportunities available in the market . . . today. Yes, time horizons vary, but it is probably shorter than you would think.
As a result, investors must make sure they avoid having a portfolio of “dead-money,” “out-of-favor” stocks.
So they must decide not only if your company is a worthy investment, but also if it is worthy today as opposed to some day in the future.
As a result, you should present a compelling reason for why you want a meeting around the proposed date and why it is important for them to own your stock today.
Equally important is timing based on a stock’s technical characteristics. Technical analysis, simply described, is a method of forecasting the direction of a stock price through an analysis of past stock price movement and volume.
Whether an investor admits it or not, nearly all of them will at some point analyze a company’s stock chart before they ever decide to buy or sell. It’s all about buying low and selling high, after all.
6. Does the company have the resources to fulfill promises?
Here the investor is simply determining if a company has the balance sheet to reach the next key valuation point. Additionally, the investors want to know a company’s past and future financing tendencies.
They want to avoid getting involved with a company that’s not financed through the key event or valuation-creation point expected.
As an investor relations advisor, we work with companies to perfect their messaging, putting together the perfect decks and creating compelling stories that resonate with investors. If you’d like a partner in this vitally important process, contact us today.
Chris Brinzey is a Managing Director on Westwicke's life sciences, healthcare services, and healthcare technology teams. He has extensive experience working within the financial services industry. He has a BA in psychology from Hobart College and an MBA from Northeastern University.
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