Investor Relations for Public Web3 Companies
Prioritising educating and long term credibility building over financial performance
Since the IPO of Coinbase in April 2021, numerous companies within the web3 domain have ventured into the public markets, either attempting to or successfully listing their shares on stock exchanges.
Once the shares are trading and advisors have placed the shares, many of these companies find themselves pondering how to draw in new institutional capital, broaden their investor base, and ultimately boosting their valuation. Institutional investors in the public market are still (albeit with ample caution) warming up to this industry and often require additional education and reassurance, especially considering the industry's chequered history and credibility concerns.
In a recent discussion with one of these companies, we discussed a few guiding principles that could pave the way for a successful investor relations and engagement strategy for web3 companies in the public sphere.
A focus on long-term credibility building is number one. The saying "we invest in lines, not dots" resonates with many institutional investors. It implies that by tracking a company over a period of time and gathering various data points, investors can form a "credibility line" that helps understand the investment case and establish trust with management team. It is common for institutional investors to require two to three meetings before initiating a position, emphasising the importance of providing comprehensive context about the company, its competitive landscape, regulatory developments, and more.
This approach is generally fundamental to all industries but is particularly vital here.
As one investor recently put it to me:
”The goal (of IR) should be to build a relationship of trust and understanding with the investor. If we end up buying shares in a company because they told us everything is amazing and didn't tell us about all the bad stuff. And then the bad stuff happens. We're going to sell the shares and we will never buy them again. Because we'll say, well, sorry, we don't trust these guys. Or more simply, we'll say, well, look, clearly we did not understand this business. We failed in our job and we're not going to go anywhere near it because we clearly don't know what this business is about. And so you will have forever lost an investor. The goal of a good presentation (or a meeting) is: giving the investor the comfort that he understand the business. This is very different to doing a sales job.”
Practically this could involve dedicating the initial chapters of your IR presentation to properly ‘setting the scene’, soliciting feedback from investors with questions like "How well do you feel you understand our industry and our company?" or organising regular seminars and teaching sessions on industry developments.
The goal is to educate, not to sell.
Proactive investor targeting. There's no established corner for public web3/crypto stocks in capital markets, and sell-side equity research is negligible compared to more traditional sectors. However there are useful examples of how listed companies could identify potential investors. One such strategy might involve identifying a peer group of public crypto companies and analysing public filings1 of their institutional investors. For instance, Coinbase has roughly 2,658 institutional investors, including a mix of large US funds, passive ETFs, and global mandate funds, some of which have only increased their exposure recently. Another angle could be to target institutional investors with a history investing early in emerging sectors such as robotics. After completing the initial data analysis, proactively and systematically reaching out to introduce your company and investment case could serve as an effective second step in the process.
Ensuring the IR operation aligns with market standards is also essential, focusing on 101 of transparency and disclosure without overly creative deviations. Here boring is good. Public market investors expect certain practices from listed companies, regardless of their sector or geography. Key pillars here include adhering to regular financial disclosures, maintaining an accessible IR website with key pieces of information, conducting quarterly earnings calls, and ensuring regular access to the management team. All done with a savvy IR officer at the helm who is financially savvy, industry-knowledgeable, responsive, and proactive in investor engagement.
Public capital markets are not the natural homes for digital asset companies. However, it is there and not on decentralised or centralised crypto exchanges, where trillions of dollars of capital reside. Spread across a vast array of global investor groups, these markets effectively provided liquidity, price discovery, and continuous access to capital for listed companies for decades. For companies opting to take this step and aiming to tap those advantages, investing in a suitable investor relations setup would be a reasonable decision.
While public filings have well-known limitations, particularly in emerging markets where local investors are not required to disclose their positions, they are nonetheless recognised and widely utilised within the industry as an indication of investment trends or within IR circles as tools for investor targeting.