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Harnessing Social Media to Reach Retail Investors

As many market participants are aware, the methods in which effective investor relations campaigns are conducted are constantly changing. For years, the assumption was that all a company needed was a phone bank with a lead list of investor phone numbers and a recent press release or corporate update to catch the attention of potential investors and pique their interest. In today’s digital world, the smile-and-dial approach of yesteryear is antiquated and is now regarded as ineffective and inefficient.

In the current investment landscape, retail investors and institutional investors alike spend a sizeable portion of their day online, just like anyone else. They may open their Facebook page first thing in the morning for news, or check their Twitter feed at lunch for updates. With our  smartphones and connected devices within arm’s’ reach at all times, these technologies have gone further than changing social interactions, and have even begun to influence the way investors uncover investment opportunities.

So, if a large portion of potential investors are using social media platforms to find news and connect with people, why not harness the power of social media to connect with potential investors and provide company news or updates?

It may not surprise you that retail investors’ trading decisions are influenced by social media. What is surprising however, is that “80% of institutional investors use social media as part of their regular work flow, and approximately 30% of these investors say information obtained through social media has directly influenced an investment recommendation or decision,” according to a recent study from Greenwich Associates.

Today, investment decisions are made because an investor has received multiple pieces of information from a variety of sources that they know and trust. As retail investors make more and more investment decisions on their own, without the assistance of an advisor, there has been a growing demand for online communities and crowdsourced investment insights where they can have open discussions about various investments with fellow traders.

While there are handfuls of investor forums out there, social media channels like Facebook, Twitter, and LinkedIn still reign supreme when it comes to targeting and reach. The ability to target followers of similar/competing companies coupled with the unrivalled user bases that these platforms possess make them ideal weapons for any investor relations warchest.

Modern investor relations campaigns require bidirectional communication, and that’s what makes these social media platforms even more useful. Not only can you share information to existing and potential investors, but you can also glean information from the very same people with polls and more. Your IR efforts should constantly be adapting to the ways that investors are gathering their information, and social media is no exception. Be sure to consult an expert though, as both IIROC and the SEC have complex rules governing such communications.

This story was written by Viride Investor Relations  and featured in Service Providers magazine.

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Marketing your Private Placement online

Online investor marketing isn’t just about supporting your stock price – successful companies are now building specific marketing plans for each Private Placement raise. As you approach a financing, consider these questions:

How much of my targeted raise amount will come from my “President’s List” and dealer syndicate? If you are confident in hitting the full raise amount, that is great news, but even then, think about your share distribution. When these shares come free trading, what type of pricing support will they see in the market? In addition to bringing in dollars and expanding your shareholder base, marketing your raise gives the extra bonus of greater overall market awareness and branding. Every investor in your private placement can become an active brand evangelist in social media, investor clubs, and online message boards.

Ask yourself – is it time to expand our shareholder base? Sure, the retail investor can be reactionary, emotional, and irrational, but support in the retail market is usually the only bridge to get you from tightly held strategic shareholders to institutional interest. For early stage public companies, the retail investor is critical. Decide if there should be a retail component in your raise, and if so start building that marketing plan. Remember that attracting investor interest isn’t just about capturing their direct investment today – it is about adding their contact information to your database, and about getting them to start following your company, both online and on social media.

Don’t forget – Financings are major milestones – do not miss the opportunity to leverage them as news, especially while the raise is “live”.

The mandatory press releases announcing the opening and closing of your raise do not count as marketing!

  • How do you find new direct investors? Look to your database first – this includes your email lists, your website traffic, and your social media. Second, itemize the different marketing, newsletter writers and industry coverage touchpoints that you already have. Get them your financing details, and encourage them to distribute the news. Don’t be shy – your company is moving forward, you are taking direct investment, and it needn’t be only Capital Markets insiders “in the know”.
  • How will exemptions affect your marketing? While the “Accredited Investor” exemption is the most commonly used, the reality is that only 3% of Canadians qualify as Accredited. Even within our online community, which is purely investment based, only 16% self-identify as Accredited.
  • How do you expand your reach? One option is to include the Investment Dealer exemption, which allows anyone deemed suitable by an IIROC Dealer to be qualified. If your marketing attracts investors who don’t already have a broker, this exemption can lead to new brokerage accounts, which can be a way to “pay back” your supporters on the broker side.
  • Another intriguing option is the Offering Memorandum, which allows self-directed, non-Accredited investors to qualify. That means you can cast your marketing net even wider, as literally every investor that can afford the investment within the appropriate jurisdiction becomes your target audience.
  • Crowdfunding exemptions are designed to allow for maximum marketing reach, but have very low individual investment limits. Crowdfunding exemptions are best suited for early stage, private company funding, not multi-million dollar public company raises. Based on CEO feedback, there is value to the crowdfunding exemption, but it is more about broader exposure than raising hard dollars. If you want to leverage both the traditional exemptions and the reach of the internet, consider an online deal portal that specializes in pubco private placements.

Every financing is a valuable marketing opportunity to create news flow and to get on investors’ radars. Decide what your investor targets are, make a plan, and leverage every distribution outlet available to you.

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ICO’s – The New Crowdfunding Platform: Caution, Speedbump Ahead.

As reported by the Globe and Mail on October 23 2017, the Ontario Securities Commission (“OSC”) has approved an Initial Coin Offering (“ICO”), to TokenFunder, representing its first foray into the land of crypto crowdfunding.  Responding to the markets appetite for ICO based financing, and the inherent need to develop a regulatory framework within which they will operate, the Canadian Securities Administrators has instituted a twelve month exemption to TokenFunder from the requirement to register as a securities dealer.

This funding platform is not without risk.  The underlying cryptocurrencies issued in conjunction with ICO’s may not be classified as securities. They do not convey ownership rights of a company, as is the case with the more traditional common shares, warrants, or other equity instruments.  Instead, they tend to carry with them access rights to a product or platform which has been or will be developed by the issuing company.  There is no guarantee the initiative(s) will ever be completed or commercially viable.  Furthermore, ICO’s remain in regulatory purgatory while governments, securities commissions and exchanges struggle to understand the ICO model and how best to fairly regulate it.

When a company undertakes to complete an ICO, it creates its own cryptocurrency and sells a portion of it under the terms of the ICO.  In a perfect situation, the company builds its platform, is commercially accepted, and demand for their digital currency surges, resulting in an appreciation of value for those holding their digital currency.

Cryptocurrencies are designed from the start to share some fundamental characteristics of precious metals.  After their initial issuance, the volume of additional cryptocurrency issued in a given series is structured to decline over time, creating what amounts to engineered scarcity.  This, coupled with potential success of the underlying platform which forms the basis of the ICO, can generate exponential growth in value of the cryptocurrency itself.

Perhaps the best known cryptocurrency, Bitcoin, introduced January 3, 2009 demonstrates the pinnacle to which all ICO’s strive to achieve. As of November 7, 2017, each Bitcoin in circulation is valued at CAD$9,510 each, benefiting from a wildly successful platform, and engineered scarcity, coupled with worldwide acceptance as a conveyance and store of value.  It’s important to note, however, that Bitcoin was first on the scene in 2009, prior to the explosion of the ICO crowdfunding demand.  While Ontario has just now approved its first one, the number of ICO’s worldwide has exploded, showing no signs of slowing any time soon.   With so many cryptocurrencies and platforms emerging, it is uncertain what the impact on individual investors will be as engineered scarcity, one of the fundamental pillars of the cryptocurrency model, is challenged by an explosion of digital currency entrants.

Bitcoin now finds itself facing challenges as its own success has sparked scrutiny.  More and more, digital currencies are utilized as the monetary conveyance of choice for criminal activity.  Many countries have begun the process of formulating policy with respect to cryptocurrencies and ICO’s, with a few restricting or banning outright certain cryptocurrency or ICO activity. As these digital currencies exist outside the influence of governmental monetary policy with central banks unable to manage what may soon prove to be a significant element of the money supply, regulatory concern continues to mount.  Furthermore, with significant and rapid appreciation in value, comes the question of unsustainable demand, further strengthening the mandate of the regulators.

As the OSC blazes its path towards regulating ICO’s in Ontario, investors find themselves faced with opportunity and a degree of uncertainty as the nature and extent of these regulations are as yet unknown.

This story was written by Robert Suttie, Vice President of Marrelli Support Services Inc. and featured in Service Providers magazine.

Learn more about Marrelli at http://www.marrellisupport.ca// and on the CSE website at http://thecse.com/en/services/services-for-listed-companies/marrelli-support-services-inc

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FINANCIAL IMPACT OF A REVERSE TAKEOVER WITH A SHELL CORPORATION

One of the popular ways for private companies to obtain a listing status on the Canadian Stock Exchange (“CSE”) is through a reverse takeover (“RTO”) with an existing listed entity. The most common version of an RTO is when a private operating entity merges with a listed (more or less) shell corporation, effected by way of exchange of equity interests, which typically results in owners of the private entity gaining control of the combined entity after the transaction.

Understanding how the financial records of the resulting combined entity shape up is an essential factor for the leadership of the private entity to gauge the breadth of such a transaction. It is however often overlooked amidst other regulatory requirements. The International Financial Reporting Standards (“IFRS”) and its interpretation, provides specific guidance around this area, which is the subject of this piece.

Despite the public shell corporation issuing shares, from an accounting perspective these transactions are considered to be capital transactions of the private entity looking to obtain the listing status of the non-operating shell corporation. They are therefore equivalent to the issuance of shares by the private entity to acquire the net assets of the public shell corporation. Unlike a straight acquisition achieved through exchange of equity interests, where the accounting records are a continuation of the entity issuing shares, in an RTO, the historical financial records of the private entity are retained. The RTO is accomplished by recognizing, in the financial statements of the private entity, the net assets of the publicly listed shell corporation in return for shares “deemed” to be issued by the private entity to obtain a control position in the combined entity. The equity structure however, (that is, the number and the type of equity instruments issued) of the combined entity, reflects the equity structure of the publicly listed shell corporation, including the equity instruments exchanged in the RTO.

The deemed shares issued by the private entity, which is the consideration it has paid for the acquisition of the public shell corporation, are recognized at fair value and any difference between the fair value of these deemed shares and the fair value of the acquired net assets of the public shell corporation, represents a cost to the private entity. The Interpretation Committee of the IFRS points out that, for the private entity, this difference in fair values is considered to be a payment for service of a stock exchange listing for its shares, and therefore should be expensed through its profit or loss. This is in contrast to the usual treatment of cost of issuing capital, which reduces the value of the capital raised. The leadership of the private entity therefore needs to understand this and evaluate if this is an acceptable impact on their financial reporting.

Although this is a simplistic introduction of what to expect if you choose to obtain a listing on a stock exchange by way of an RTO with a listed shell corporation, accounting for such acquisitions can be quite complex. This could include determining the fair value of the consideration for the transaction (i.e. the value of the deemed shares issued by the private entity), the fair value of the net assets of the public shell corporation, non-controlling interest considerations, earnings per share calculations, to name just a few. The key thought is to ensure to involve your accounting advisors, amid other consultants, at the right time in the whole process so you have a complete picture of the impact of your desired transaction.

This story was featured in Service Providers magazine.

Learn more about Avisar at http://avisar.ca/ and on the CSE website at http://thecse.com/en/services/services-for-listed-companies/avisar.