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Many Silicon Valley companies lack a ‘share price strategy,’ survey reveals

RoseRyan and Assay Investor Perspectives just released their Share Price Survey Results after meeting individually with more than 20 senior finance leaders and directors and surveying others online. We intended to gain an understanding of what private and public companies are doing to actively manage their valuation and share price over time.

It turns out they are making some efforts but lack the expertise and long-term strategy to pull it off well. After the clever pre-IPO road show presentations and after all the investment bankers have gone home, there’s little thought put into creating a comprehensive “share price strategy.”

It’s a hot topic. Share price and valuation always get attention whenever RoseRyan provides thought leadership papers or events on this topic. That’s not so surprising since we are in Silicon Valley after all, surrounded by all the hoopla that accompanies the latest IPO, merger or acquisition – and all the valuations that go along with them.

The excitement is even greater these days as we are in the midst of a busy IPO market. In 2013, FireEye, Portola Pharmaceuticals, Twitter, Rocket Fuel, Veracyte, Marketo and others kicked it off. And the trend is continuing, with anticipation that Box, KineMed, Dropbox, Asterias Biotherapeutics, Square, Spotify, Airbnb and others will soon file as well.

It is amazing how much effort goes into preparing for an IPO. What comes next involves hard work as well. Companies that let the inevitable “post-IPO hangover” take too much of an effect miss out on critical opportunities. Those hot-shot companies will need to take their singular focus off getting to the IPO bell and spend a little time considering how they will maintain their share price and valuation. But most likely they will not. Too often, newly public companies don’t come up with a strategy for how they are going to not only maintain their lofty valuation but also increase it over time.

What to Do Next
Executives usually have two choices to increase their valuation – grow their income or increase their multiple. What the survey results and our discussions show is that companies really don’t understand what the buy-side analysts are looking for. The buy-side analysts’ focus is usually on the multiple and the levers that will move the multiple directly. Most companies focus on increasing net income, which is what most buy-side analysts don’t focus on.

Why is there such a big disconnect? It is centered on the nature of the people doing the work. Most investor relations representatives have either a communications or a sell-side background, and most buy-side analysts have advanced degrees or PhDs in mathematics. And most company executives have MBAs. These different backgrounds can lead to a mismatch in the way these groups speak to each other and understand each other. Basically, they are speaking different languages.

The results of our executive conversations show that this disconnect is causing issues in long-term valuations. Companies’ lack of a solid understanding of buy-side analysts and what really drives share price can expose them to undervaluation. A depressed (from where it should be) valuation impacts recruiting, brand, motivation and culture.

Senior leaders can reverse this trend by deploying strategies that really drive the multiple and having a focused strategy on communicating those strategies to analysts. This does not preclude companies’ need for focusing on increasing income; it just means if they want to supercharge their valuation, they need to have clear strategies that increase their multiple. Read our report, Share Price Survey Results 2013, for the details.

Chris Vane is a director at RoseRyan, where he leads the development of the finance and accounting firm’s cleantech and high tech practices. He is open to discussing ways to positively impact your company’s share price/valuation. Contact Chris at [email protected] or call him at 510.456.3056 x169.

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Survey benchmarking Bay Area start-up environment reflects RoseRyan client experience

The Bay Area Council Economic Institute has just released the results of its survey that benchmarks the Bay Area environment for young companies and entrepreneur-led start-ups. The Council’s 300+ members are a “who’s who” of Silicon Valley; I was pleased to be selected as one of the partners who contributed to the study.

Although there has been improvement in the local economy over the previous year, the survey shows there are still challenges. This is consistent with RoseRyan’s experience in the marketplace. Our clients are still having a tough time raising capital, regulations are still difficult to navigate, and other geographic areas are competing for business, but I am still optimistic in this region’s ability to adapt and innovate at a great pace.

I’ve compared some of the key findings to RoseRyan’s experiences:

Listing regulations and requirements do not discourage companies from seeking public listings: Only 16 percent of respondents agree. This is key as clients usually are not prepared to handle all of the main components of preparing their S-1s and SOX requirements after an IPO.

The government has developed tax incentives to increase the amount of research and development. 36 percent disagree and 28 percent are neutral. Tax incentives play a smaller role here than other parts of the world. Most companies, like most of our clients, do not rely on government subsidies but are certainly aware of available grants and tax incentives.

Compliance with government regulations does not unfairly burden new and growing firms: 31% disagree, which is much lower than other parts of the world. This is consistent with many of our clients’ experience. They still have to deal with a labyrinth of regulations in California which are slowly getting less cumbersome.

Government programs provide high-quality services to new and growing firms: 12% agree. Unfortunately, there does not appear to be any faith in government programs. Many of my clients feel that government support is a bonus.

Most entrepreneurs personally know one or more private individual investors (i.e., “angels”): 43% agree. Most of RoseRyan’s clients are cognizant of the “start up” ecosystem of investors.  They understand the ebb and flow of the markets based on the overall economy.

Stock options are considered a positive source of compensation. 84 percent agree.  This is consistent with our business, and we expect stock options to be a strong motivator for attracting and retaining employees.

Benchmarking the Bay Area’s Environment for Entrepreneur-Led Start-ups provides many other interesting insights. You can learn more about the Bay Area Council on their website.

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Cleantech survey findings consistent with word on the street

RoseRyan recently completed the second annual State of Cleantech Survey with our partners KPMG, Barney & Barney and Arbor Advisors. In general, the findings are very consistent with what we are hearing from clients. Cleantech ventures are still being funded but investors are keeping a cautious eye out due to macroeconomic issues. Although there have been some high-profile flops (Solyndra) there have also been many successes (Tesla). The Valley continues to produce high-profile cleantech success stories, and I anticipate there will be some big wins in the coming year.

Some of our key findings include:

  • The overall outlook for venture funding is optimistic, with 67 percent of survey respondents saying they are extremely, very, or somewhat optimistic.
  • The outlook for cleantech growth in Northern California is strong, with fully 50 percent saying they are extremely/very optimistic.
  • The two biggest trends are an increase in M&A and the expansion of large multinationals into cleantech.
  • The greatest challenge is gaining access to capital.
  • Regarding personnel, cleantech demand is highest for engineering support.

All of my clients are highly optimistic about the future of cleantech. Most believe that if they had greater access to capital at attractive terms they would be able to expand their business rapidly. Some sectors, including solar and lighting, are growing rapidly and are being impacted by the advent of strong Chinese competitors, while others, including energy efficiency and storage, are growing at a steadier pace. Big multinationals are biding their time trying to predict who the winners and losers are going to be.

I fully expect the pace of innovation to continue as the federal stimulus–funded clients approach their second and third years post-funding. The cleantech market is showing some signs of maturity and funding infrastructures are improving. Although the frothiness of the past may be mellowing, the overall market is growing at a nice, sustainable pace.

In the coming year expect some big news in biofuels and electric vehicles spaces…it should be interesting to watch!

You can download a PDF of the 2011 Cleantech Survey report or read the news release.

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New study looks at implications of Bay Area entrepreneurship

An exciting new study soon be released will benchmark the entrepreneurship policies of the Bay Area and provide a detailed review of entrepreneurship and its potential implications over the next one to five years. The San Francisco Bay Area Entrepreneurship Policy Benchmarking Overview will look at how the Bay Area compares to cities throughout the world and in the United States.

The project is being spearheaded by the Bay Area Council Economic Institute, a public-private partnership of business, labor, government and higher education that works to support the economic vitality and competitiveness of California and the Bay Area. Sean Randolph, the council’s president, is leading the effort; other participants include representatives from national laboratories, academic institutions, politics and corporations. I was honored to be nominated to the team based on my knowledge of cleantech and RoseRyan’s work with entrepreneurs.

I can’t mention specifics until the report is issued, most likely in the May/June timeframe, but I can tell you that the results will really illuminate the mindset and attitudes of entrepreneurs and what can be done to promote entrepreneurship throughout the region. The areas covered are comprehensive, including financing, legislation, skills, talent and technology.

As you can imagine, culture plays a big role in defining the competitiveness of our region. I can’t wait to share with you some of the key findings when the report is released.

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