Size Matters: How to Manage Shareholders Under Title III
Most companies go out to raise capital knowing exactly what they’ll do with the money once they have it. They’ve got an itemized plan broken down by category, and by months and years, but they forget about the source of that cash: Their new shareholders.
If your company is thinking of raising capital, your shareholder management game plan needs to be as well thought out as your marketing plan, your business plan, and every other part of your day to day operations, especially if you’re approaching equity crowdfunding.
Because in the world of equity crowdfunding, size matters.
The approval of Title III of the Jumpstart Our Business Startups (JOBS) Act is a milestone for the crowdfunding landscape and community, proving that bigger is definitely better — now everyone and anyone can become an investor.
This democratization of investment is incredible; people are financially empowered in a way they’ve never been before. Before Title III, a company could only have 500 investors before going public; now, companies may have up to 1,000.
This expansion of possibility is a wonderful thing, but if everyone is an investor, then companies raising capital under Title III are going to have to adapt to managing a larger number of shareholders, and will face a number of challenges associated with the influx.
If this influx of shareholders is going to cause a headache for your company, then why would you bother with such a number of shareholders in the first place?
This outlook is only relevant if you see your shareholders as bothersome, just another item on your list of things to manage. This is the wrong attitude; the truth is that your shareholders are your company’s biggest asset. Your shareholders are people who believe in you and what you do so much that they want to invest money in your ideas. It’s a relationship built on trust: they trust that they will see returns because your company has the drive and innovation to generate capital. With the ubiquitousness of social media, it’s especially important that your shareholders are satisfied with their relationship with your company, and not just whether or not they’re seeing returns.
So the question becomes: How do you make sure your shareholders are seeing results on all fronts? For one thing, shareholders should always have access to corporate information for the simple reason that they’re legally entitled to it. If it isn’t easily accessible, then that’s a problem with transparency and accessibility. Your shareholders care about you, and you should care about them.
A large part of succeeding here is ensuring that you’re always communicating with your shareholders. I spend a lot of time thinking about shareholder management – I built my company on the idea that managing and communicating with all your stakeholders should be done in one place, and that transparency should be a cornerstone of every business. The key is to adopt tools like KoreConX that bring together you and your shareholders. What will not work is Microsoft (MSFT) Excel, or the emailing tools of the past.
Having a plan in place and being proactive in managing your shareholders is essential when you’re raising capital. In fact, you’re doing yourself a huge disservice for future funding rounds if you don’t.
A large number of shareholders is a wonderful thing, and we’re prepared to work with them. It’s time to go big, or go home.
Jason Futko is co-founder and chief financial officer for KoreConX. Prior to KoreConX, Futko co-founded Crowdfunding Alliance of Canada. In addition he was managing director of an Exempt Market Dealer and Chairman of a public investment vehicle in the United Kingdom. Jason has vast experience in financing businesses globally. He has extensive knowledge of international know your client (KYC) and anti-money laundering (AML) regulations.