It’s hard to believe I have already been working at Westwicke Partners for 90 days. After a long career as a sell-side equity analyst, the last three months have truly given me a new perspective on how I view company management teams vs. how the Street views them.
For 25 years, I was paid to poke holes in stories — and believe me, in many cases it was easy to do and I would ask myself, Why can’t this management team just get it right? Now, looking from the inside out, I can more clearly see some of the reasons.
First, we sometimes forget that there is a day-to-day business that actually needs to be run, which is time-consuming. And second, newer companies are bombarded with advice from stakeholders on all sides (go public, don’t go public, do a strategic deal, present at brokerage conferences, do non-deal road shows).
My eyes have been opened — not only to the daily challenges facing CEOs and CFOs today, but also to some of the disconnections between what Wall Street wants and what/how it is delivered.
I have spent the last three months meeting with multiple constituencies, each with its own purpose: life science firms, bankers, VCs, and buy- and sell-side analysts. It’s hard to keep everyone’s background straight and difficult for almost any CEO to manage, but each party is looking for something different, and it’s important to realize that.
Whether your company is private doing a capital raise or public and doing a non-deal road show, there are a few basic best practices that relate to almost any situation you will encounter.
- Keep the story simple. As a sell-side analyst I have listened to probably thousands of company presentations, most of which are loaded with scientific data. The best presentations (and the ones I remembered for more than a few minutes after the CEO left the room) were the ones that were short and sweet. Keep in mind that in most cases, the person sitting across the table from you might see 10-15 companies per week (maybe even more in a hot market). My guess is that after 10 minutes they probably aren’t really hearing much of what you are saying anyway. Get your point across up front, quickly and effectively — bullet points — and think like the person(s) you are presenting to. If it is a buy-side account, how will they make money investing with you? If it is a sell-side account, does the story fit with what they do and how can they sell the idea to their sales force and ultimately the buy side?
- Listen to the questions and actually answer them. Too many times I see management teams enter a room convinced that they don’t need to breathe for the next 30 minutes. They were assured that to make the meeting a success, their 40-page presentation had to run from start to finish with no interruptions. Not true. Some of the best meetings are conversational. Again, know who you are meeting with and know their style. Sometimes the quiet meetings indicate a party that has tuned out except for some occasional head nodding. Although tougher, the meetings where the hard questions are asked can indicate a willingness to want to own a stock or pick up coverage of a company. This person is engaged and really wants to get to the bottom of something, and just needs to lay an issue to rest before jumping in.
- Avoid the “glass slipper” syndrome. Be true to yourself and don’t try to position your company in a glass slipper that doesn’t fit. Different healthcare sectors run hot and cold; that’s a given. It doesn’t mean you should try to be something you are not. If you are a specialty pharmaceutical company, be the best specialty pharmaceutical company you can be, and if you are undoubtedly top tier compared to your peers, your valuation will be justified. If you are a specialty pharma company and you try to fit the mold of a biotech company because biotech is in favor, it will likely be a tough sell. Wall Street will figure it out and it could hurt your credibility. Specialty pharma, for example, might not be as “sexy” as a new immunotherapy play, but may be more predictable. Attract the right investors for your company, not someone else’s — it will pay off in the long run.
- When in doubt, take it out. I have seen the struggle between trying to balance giving out enough information to make a story interesting with going too far and setting unrealistic expectations. When I used to write sell-side research I stood by the motto “when in doubt, take it out.” This is probably a useful guideline for management teams as well — don’t be over zealous and promise too much. Set realistic metrics and leave room for the unexpected.
- When building a business, execution matters. In every meeting I have ever sat in on, there are people taking notes. As a sell-side analyst, I always had my legal pad of what management was telling me (sometimes with comments written in quotes). The next time I would see the same management team, I would compare those notes. If they told me they were going to grow the top-line 10-15% — did they? If not, why not? Inconsistency is a major red flag, especially for new companies. Execution is always the key.
This all seems so simple, right? Do your homework, hear what people are asking, tell it like it is, live within your means, and just get it done. What’s so hard about that?
Quite possibly for those companies that struggle, they really were executing but along the way their message got clouded by some poor guidance. We all know there is no shortage of advice, good and bad. My advice is to get multiple opinions and make sure those that you are asking have your best interest in mind. Contact us for a deeper conversation about your company’s needs.