The Digital Age: Preparing Private Companies for Modern Investor Relations

By Joan Dromey

The JOBS Act of 2012 created attractive options for private companies to raise capital from outside investors without ‘going public’. There are also emerging choices to provide some degree of liquidity for non-traded securities.

Depending on where you are in your corporate life-cycle and your investor population, you’re using different means to communicate with your investors and keep track of their accounts. While the methods you have in place may support your company’s current state, it is important to consider how your company will grow and change, and how those processes will need to grow and change to keep pace.

How Investor Relations Changes Throughout the Lifecycle

Startup/Pre-Seed (Very Early Mode)

  • Who Are Your Investors? Typically at this point, your company is using founders’ equity, or investments by close friends or family.
  • Who is Keeping the Records? Records are kept by the founder, who is sending informal communications to any friends or family who have invested in the company (when time allows!).
  • Does it work? This system works reasonably well at this stage if there are only a handful of investors that most likely know the founder well.

Seed/Early Stage

  • Who Are Your Investors? Your company is now backed by angel investors, venture capital or equity crowdfunding efforts.
  • Who is Keeping the Records? Records may still be kept by the founder, CEO or CFO, or by law firm. In some cases, a transfer agent is brought in at this point.
  • Does it Work? As the list of investors grows and the caliber of those investors evolves, there is higher demand for transparency, accountability and good corporate governance, so in-house records may not be the best way to meet this demand. Internal staff will be more focused on growing the business so the in-house record keeping efforts can fall by the wayside due to lack of resources.

Growth Stage

  • Who are Your Investors?
    • Series A: Traditional venture capital firms and equity crowdfunding, or sometimes individual accredited investors.
    • Series B/C: Large venture capital firms and investment bankers and/or individual accredited investors.
    • Traditional IPO or Regulation A+ (mini IPO): Individual investors.
  • Who is Keeping the Records? Records are likely being maintained by a law firm, accounting firm or transfer agent. If you are raising money under Regulation A+, you must use an SEC registered transfer agent.
  • Does it Work? Using a law firm or accounting firm to keep your records is certainly a more secure choice than attempting to manage the information in-house, however it can be costly and, as your shareholder numbers grow, your accountant or lawyer may not want – or be equipped – to take on the additional volume. In addition, raising capital in this stage requires a high standard of corporate governance that may be outside your area of expertise. And as you look at additional rounds of capital raising, the need for accurate shareholder records increases exponentially.

So Where is This All Leading? As your company grows, the need for accurate record keeping and transparent processes becomes paramount. To operate efficiently and meet your objectives, it makes sense to institute corporate governance best practices as early as possible.

What Does Corporate Governance Mean?

Adopting good corporate governance practices means ensuring your company is being a good citizen as it relates to its stakeholders – this includes your employees, your suppliers and your community as well as investors. It is a good idea to have these processes and practices in place before you bring in outside investors – and you must have them established once you have a board of directors.

Good corporate governance will also help you balance your stakeholder needs with the potentially competing interests of your company and founder.

Be Prepared for Modernized Investor Services

When establishing corporate bylaws, articles of incorporation and even offering memorandums, many lawyers rely on proven templates that have passed muster in the past. Unfortunately, this can leave you with governing documents that don’t support a modern approach to investor services. To reduce expenses and increase convenience for investors, you should make sure your bylaws, articles of incorporation and offering memorandum allow for the following:

  • Default to Issuing Book-entry Shares Instead of Paper Certificates:
    • Issuing paper certificates is expensive as the number of investors grows
    • It is riskier and more cumbersome for both you and your investors
  • Establish Email as the Primary Means of Communication with Investors:
    • E-communication allows you to reach out to investors quickly as needed without worrying about timing and cost.
    • Alternatively, you can consider defaulting to electronic communications but offer the ability to opt in for paper if that is their preference.

By including these things in your corporate documentation from the start, you’ll avoid the time and expense needed to make adjustments down the road. Changes may require a special meeting or a shareholder vote at an annual meeting.

Start Working With a Transfer Agent Early

By working with a transfer agent, you can keep your records in the right way, right from the start. You’ll have established the governance infrastructure that can help you avoid issues as your company grows. The right transfer agent can help you:

  • Optimize Your Time. You won’t need to spend time tracking records or keeping up to speed on regulatory changes and requirements.
  • Maximize the Value of Your Relationship. A good transfer agent will be able to support your corporate lifecycle from start-up to IPO and beyond. By working with the right partner you can access the services you need when you need them, without having to shop around at each stage.
  • Secure Your Data. You can feel confident when your transfer agent has dedicated information security, compliance and internal audit teams. Complete disaster recovery and business continuity plans give you that peace of mind that your investor records are protected and accurately maintained.


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