Recently, I tried to reach a director of investor relations at one of the investment funds in California. I am an organizer of Aspen Investment ForumJOBS Act – Challenges and Opportunities for Communications Professionals and Marketing …, and one of the topics there is the role of social media in investor relations. I wanted to invite this investment fund’s representative to participate in a discussion about it. I sent her five messages on LinkedIn and have never heard back. I had no other choice but to contact the president of the company. He responded within an hour. I expressed my frustration about the difficulties in communications, and his response was this: “A director of investor relations is not required to use social networks. It is her personal choice, and I don’t see anything wrong if she hasn’t visited LinkedIn or Facebook for six months”.
That could be a true statement in the past. But the recent lift of the ban on general solicitation (JOBS Act Title II) has changed the situation, and it is my belief that soon IR/PR specialists will have to learn lots of skills including social media marketing, email newsletters, media communications, etc. Actually, those who don’t want to be left behind should be doing it right now.
So what difference does the JOBS Act make, and what kind of opportunities does it open for investor relations, public relations and marketing firms and departments? It has two major parts that will significantly influence the responsibilities and necessary skill sets of investor relations specialists.
The first one is Title II, which went into effect on September 23, 2013. It lifts the 80-year-old ban on general solicitation, allowing private companies and investment funds to promote their fundraising activities using the Internet, social media and traditional advertising channels. Until that date, companies were not allowed to reach out to potential investors unless they had pre-existing relations with them.
Now a private company, real estate developer or an investment fund can reach a much wider audience by openly promoting its activities. Within two days of the law coming into effect, nearly 1,500 companies started fundraisers on AngelList, the largest online network of private investors. Obviously, many companies will consider increasing their marketing budgets next year to take advantage of the new provisions. PR and marketing companies interested in getting a piece of this new cash flow should be approaching potential clients already, and offering them strategies to attract potential investors and to raise awareness about a company looking for funds.
Of course, stepping into a new territory requires caution and studying the rules. Title II of the JOBS Act allows raising funds from accredited investors only. To be considered an accredited investor, an individual must have an annual income of at least $200,000 ($300,000 if financial statements are filed with a spouse) in each of the two most recent years and reasonable expectations to keep it in the future, or to have a net worth, excluding equity in primary residence, exceeding $1 million.
While it is not a responsibility of a PR or a marketing firm to verify the accredited status of article readers or Twitter followers, the company should be clear in its statements about the limitation. By reminding your clients about the SEC regulations, you will help both parties to stay out of trouble and yourself to keep paying customers.
But 93 percent of Americans still can’t participate in private placements. Another part of the JOBS Act, Title III (crowdfunding for the general public), is currently being finalized by the SEC. On October 23, the members of the Commission voted for the proposed rules that are now published for public comments. The final document is expected to go into effect in late spring or summer of 2014. When in place, it will allow the general public to invest in American private companies, potentially opening financial floodgates to fund small businesses around the country.
There are also many restrictions that are supposed to protect average Joes from losing significant amounts of money. A company looking to use the new legislation must use a broker-dealer or a registered crowdfunding portal; depending on the money it is looking to raise, it has to provide extensive financial documentation. There is a limit of $1 million in a 12-month period for an amount to be raised through crowdfunding. An individual earning $100,000 or less is allowed to invest $2,000 or 5% of their income per year.
The crowdfunding exemption, in my opinion, will make the biggest impact on small businesses looking to raise funds in local communities by engaging existing and potential customers. While these fundraising campaigns are not going to bring top-paying customers for local PR and marketing companies, there will be significant need for specialists in community management and customer relations fields. It is especially important for companies operating in for places outside of traditional investment hubs like Silicon Valley, New York City or Boston.
A growing number of state governments, currently including Georgia, Kansas, Washington, North Carolina, Wisconsin, Michigan, Alabama and New Jersey, either already have enabled or are discussing intrastate crowdfunding exemptions. They have their own, mostly more liberal, sets of rules, providing additional opportunities for fundraising activities without the need to wait for the federal government to finalize the law.
According to the National Institute of Investor Relations, “Investor relations is a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies, which ultimately contributes to a company’s securities achieving fair valuation”. The head of the investor relations department in most companies reports to the Chief Financial Officer because their activities directly influence a company’s bottom line. It has been said many times that an effective IR/PR strategy leads to reduced cost of capital for a business. The recent changes in legislation make investor and public relations specialists an even more important part of the fundraising process, and increase demand for the firms providing quality and cost-effective services to connect private enterprises with potential investors.
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