Rotem helps companies pre-identify and mitigate manipulation and reputation attacks. CEO ARX, a corporate advisory and VC.
With some predicting a rebound in the IPO market in 2024, it’s time for CEOs contemplating this move to get prepared. And in today’s volatile market environment, being publicly traded can look different than it has in the past. I’ve found that the era of the traditional public relations and spokesmanship playbook is quickly fading.
Today, more power has shifted toward a new breed of retail investor. In my experience helping many public companies navigate uncertain waters, one thing is clear: CEOs must take today’s retail investors seriously or risk future problems.
A New Force To Reckon With
Historically, retail investors were guided by Wall Street experts, analysts and PR campaigns. They were the followers.
But the winds have changed. A new breed of internet-savvy retail investors has emerged. Powered by online communities such as Reddit, StockTwits and SeekingAlpha, these digitally-native individuals don’t just follow the investment crowd; they often lead it.
The problem? Many who consume content on these platforms may not pay enough attention to the cold, hard facts. A persuasive argument, valid or not, may easily sway them. With short attention spans, they also tend to act first and worry about researching later. This tendency makes it easy for negativity about a stock to spread like wildfire, whether founded in reality or not.
Along with trigger-happy young retail investors, another dynamic is in play. That’s the proliferation of bad actors putting out fake news. A 2019 study by cybersecurity firm CHEQ and the University of Baltimore suggests that fake news costs the global economy $78 billion annually.
The Impact On Smaller Firms
Research shows small-capitalization publicly traded firms are particularly vulnerable to the effects of fake news. One study conducted at the Yale School of Management found that deceptive articles on investment websites could temporarily boost stock prices.
Unfortunately, the researchers also noted that the common occurrence of misinformation is changing investor psychology—it appears to be eroding public trust in any information. After a scandal in 2014 surrounding fake articles on SeekingAlpha.com, the site’s authentic articles were found to drive less impact than before. According to Yale researchers, this is harming the entire ecosystem. “The presence of fake news makes us more wary of trusting real news,” observed Marina Niessner, professor of finance at Yale School of Management, one of the collaborators on the study.
Navigating The Waters Leading Up To Your IPO
As you begin the transition to a public company, you must be prepared for these situations. As these online communities have grown more influential, many users are no longer content with surface-level information.
Instead, they dissect and debate, often leading to an aggressive and sometimes hostile stance toward traditional corporate narratives. I’ve noticed that the average retail investor is investing more and demanding more transparency, authenticity and accountability from companies.
With IPOs, a simple slip-up in messaging or a perceived lack of transparency can create negative sentiments that can impact an IPO’s success. Fortunately, there is a way to navigate these turbulent waters. The answer lies not in combating this new force but in understanding, engaging and working alongside it.
Strategies For Success In 2024’s IPO Landscape
As CEO of a firm that uses AI to help new issuers monitor and impact investment chatter, I’ve learned that being proactive can help create a more stable market for your stock. Here are steps to consider taking as soon as possible.
1. Monitor the digital narrative.
Keeping an eye on what’s being said about your company across social media is not just smart—it’s essential. Monitoring these platforms allows you to stay ahead of potential issues and respond to them before they spiral out of control.
2. Engage with authenticity.
Companies today need to focus on building trust as well as furnishing facts. Speaking to investors through social media gives you an opportunity to do that, but it requires a different approach than traditional channels.
Authenticity is critical, and that means creating tailored awareness campaigns that resonate with this new breed of investor. For example, companies can host Reddit AMAs (ask me anything) and Q&A sessions on platforms like X (formerly Twitter) to directly engage with retail investors.
3. Prioritize proactive mitigation.
Ask any small-cap company that has been on the receiving end of a negative campaign: An ounce of prevention is truly worth a pound of cure.
Take the time to inject facts into the conversation, counter misinformation and stay engaged with the investor community. This builds a reservoir of goodwill that can help shield your company during turbulent times. The goal is to counter negative campaigns before they spiral out of control.
4. Put data on your side.
A thorough and continuous analysis of online sentiment can guide your communication strategies. Knowing what resonates and what doesn’t enables your team to adjust your communication style and content to understand what is truly connecting with today’s online investors.
Make sure to follow your company’s hashtags and related tags on social media. And get involved within sector-oriented chatter groups, like on Reddit.
Today, the voice of the retail investor is louder and more influential than ever. That’s why understanding and engaging with this new investor community doesn’t just improve the chances of your IPO success; it can even shape your company’s future.
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