Agoracom Blog

Why Broker Road Shows Don’t Work For Small-Cap and Micro-Cap Companies (US Version)

Posted by AGORACOM at 11:02 AM on Monday, March 10th, 2008

Time and time again I hear from new potential clients that insist on broker meetings as a part of their IR program. Time and time again I have to explain to them that broker meetings (AKA “broker tour” “dog and pony show” “rubber chicken circuit”) are of no use to them because of 2 simple facts. For the sake of not having to repeat myself in future conversations, I’ve provided the following summary for your convenience:

  1. 99% of brokers do not speculate on penny stocks. It’s hard enough for them to keep up with Citigroup, Google and Exxon, let alone trying to keep up with the typical small/micro-cap. Despite the fact you are a “good deal” at current prices, brokers would prefer paying a much higher price once you’ve separated yourself from the pack.
  2. The “Penny Stock” Rules. Even if you found that 1 in 100 broker that takes a liking to your company, he/she still won’t bother selling it to their clients due to the penny stock rules. For your convenience, here is a summary taken from a typical “related risks” section of a small-cap filing:


Our shares may be considered a “penny stock” within the meaning of Rule 3a-51-1 of the Securities Exchange Act which will affect your ability to sell your shares; “penny stocks” often suffer wide fluctuations and have certain disclosure requirements which make resale in the secondary market difficult.



Our shares will be subject to the Penny Stock Reform Act, which will affect your ability to sell your shares in any secondary market, which may develop. If our shares are not listed on a nationally approved exchange or the NASDAQ, do not meet certain minimum financing requirements, or have a bid price of at least $5.00 per share, they will likely be defined as a “penny stock”. Broker-dealer practices, in connection with transactions in “penny stocks”, are regulated by the SEC. Rules associated with transactions in penny stocks include the following:


the delivery of standardized risk disclosure documents;


the provision of other information such as current bid/offer quotations, compensation to be provided broker-dealer and salesperson, monthly accounting for penny stocks held in the customers account;


written determination that the penny stock is a suitable investment for purchaser;


written agreement to the transaction from purchaser; and


a two-business day delay prior to execution of a trade


These disclosure requirements and the wide fluctuations that “penny stocks” often experience in the market may make it difficult for you to sell your shares in any secondary market, which may develop.


I’m also compelled to throw in another major practical impediment – waste. Touring like the Rolling Stones and picking up every expense related to travel, meals, lodging and every stick of gum for your entourage is a colossal waste. Factor in the time and energy you take away from your business to both prep and tour – and I have to start questioning whether or not you are even a suitable officer for your company.

I know you love your baby and believe it is the most beautiful baby in the world. However, do you think there’s a small-cap CEO on the planet that doesn’t believe the same thing? Welcome to the club – they’ve even got jackets.

Once you understand all of this, you’ll finally understand why brokers don’t care about your baby’s potential. Sure, they’ll give you a pat on the back, wish you all the best and tell you to stay in touch – but they aren’t going to buy until your baby starts showing Tiger Woods talent and separating itself from the pack. Until then it’s “don’t call us, we’ll call you.”

I know this may come as a disappointment to some of you but the sooner we can get this nonsense out of the way, the sooner we can focus on a real investor relations plan with a real chance of success – focusing on retail investors.


One Response to “Why Broker Road Shows Don’t Work For Small-Cap and Micro-Cap Companies (US Version)”

  1. Mike Mitchell says:

    Hey Georgie! You never call, you never write me anymore, what’s up! Kidding aside, reading your article you missed the “biggest challenge” of all when it comes to brokers recommending penny stocks. Brokers can’t buy these, unless it’s an “UNSOLICITED” order and the client signs a letter agreeing that it’s not their idea to purchase. How did your conference go? Are you sharng the HOTTEST internet company out there with anybody? We’re blow’in & goin here. Hope you’re doing great too. Mike Mitchell