QIC Inside Investor Relations Volume 48: The Nine Key Questions that Investors Ask "New Economy" Companies

QIC’s 12th Taiwan CEO Week attracted 55 companies and over 210 investment institutions to partipicate in over 1,400 meetings. Unique to the 12th Taiwan CEO Week is that apart from tradtional listed companies, we’ve also invited multiple Taiwan-based “New Economy” companies to participate. These include 1) listed companies: eCloudvally (6689 TT), Appier (4180 JP), and Gogoro (GGR US); 2) A soon to be listed on the Taiwan Emerging Stock Board: Groundhog (6906 TT); and 3) private companies: Gogolook, KKday, CloudMile, and iKala. To our surprise, investors continue to show interest in these New Economy companies and seek out potential investment opportunities even as we face a global economic downturn in the post-COVID era. Based on our observation, we would like to share the nine key questions that Investors commonly ask "New Economy" companies:

1. Revenue model: How do you price your products or services? What is the mix between recurring & one-off revenue? What is your customer retention rate? Are you able to cross-sell other products?

Those companies whom we generally referred to as "New Economy" companies, each company's revenue model can be very different. Investors typically started the conversation by asking “How do you charge your customers? On what basis do you charge customers? How do you implement price segmentation?” For companies that focus on subscription-based revenue models or have high contributions from recurring revenue, investors care about customer retention rate and typically would ask “What are the main reasons for customer churn?” Investors also focus on whether a company has the capability to continuously increase product usage by existing customers, and whether it is able to cross-sell other products to existing customers.

2. What is your customer acquisition strategy? What are the sources of customers? What is your marketing strategy?

Investors want to know 1) the profile of a company’s target customers; 2) the sources of customers, mainly from word of mouth, organic or others; and 3) how to reduce customer acquisition costs through adopting effective marketing strategies. For B2C platforms, investors focus on how a company can attract more and more sellers and buyers to its platform, creating a unique ecosystem. For B2B companies, investors typically would ask “How long does it usually take from first contact to signing a contract?”

3. How large is the total addressable market? What are the key revenue growth drivers and what is your business focus? What product lines do you plan to expand in the future?

New Economy companies often leverage innovative technologies or business models to create new market opportunities or replace existing technologies, and investors generally would like to know the size and the growth rate of a company’s target market. Other frequently asked investor questions may include: 1) After you have gained a firm foothold in one business, how can you continue to drive growth in that business? 2) What other business opportunities are there, and would that secondary business potential partially inhibit the development of your first business? 3) What is your revenue growth target for the next 3 years? 4) Do you have sufficient cash to support future growth? And 5) What is your burn rate?

4. What is the competitive landscape in your industry? Who are your key competitors? How do you differentiate yourself from your competitors?

Many New Economy companies have unique competitive advantages in specific areas, but investors who are new to those companies are often unfamiliar with the competitive landscape. As a result, many investorquestions would focus on the following topics including the key competitors in each business segment (including local, regional, and international competitors), how a company differentiates itself, and barriers to entry. Answers to these questions reflect a company's level of understanding of an industry’s competitive landscape.

In addition, we found that many New Economy companies tend to mention Artificial Intelligence (AI) and Machine Learning (ML) as their competitive advantages. However, investors are often confused about the differences between each player’s AI/ML capabilities. Investors care about if a company’s AI/ML technology can stay competitive in the next three to five years and want to know the company’s competitive advantages in terms of technology development or business model. Discussions on these topics help investors understand the investment thesis of a company. Especially when a company’s business overlaps with well-known international players, investors are interested in exploring how the company can compete with them.

5. Is your business model replicable, so that you could expand outside of Taiwan? What is your strategy for geographic expansion, and what are the potential challenges of entering new markets?

As the market size in the Taiwan domestic market is limited, many New Economy companies have to expand their business overseas to pursue sustainable growth after gaining a firm foothold in the Taiwanese market. The key questions asked by investors typically include: the current revenue mix between Taiwan and overseas, the replicability of the business model, how to prioritize regions for overseas expansion, the strategy of talent and customer acquisition, and the capability to operate internationally. Specifically, for B2B-focused New Economy companies, investors care about how a company can effectively penetrate new markets and build up relationships with local leading enterprises in theseoversea markets, instead of simply following the geographic expansion of Taiwan-based customers. In addition, investors also want to know whether a company will accelerate its geographic expansion through M&A, further widening the gap between the company and its competitors. As a result, it would be helpful if a company can share its M&A strategy and what capabilities or customer relationships it expects to acquire through M&A.

6. As customers’ internal IT teams gradually build up relevant skills over time, will you be replaced by their internal teams? What are the alternative solutions to customers if they do not adopt yours? Can an employee replicate your technology after his or her departure?

For B2B-focused New Economy companies, common investor questions may include: 1) While your customers now rely on your solutions, will you be replaced by their internal IT teams over time as they gradually build up relevant skills? 2) With an increasing number of competitors or alternative solutions available on the market, will your bargaining power deminish and face pricing pressure and margin squeeze? 3) Will your technology be replicated by your employees after their departure? By asking these questions, investors want to know more about the company's moat.

7. Following the revenue growth of your company, do you expect profitability to pick up quickly with the economy of scale and operating leverage?

For New Economies companies in late-stage funding rounds and for those who are publicly listed, in addition to revenue growth, investors inevitably also care about the profitability of these companies. Questions that are frequently asked include: Do you expect the net loss to narrow or widen in the future? As revenue increases, can your profitability improve substantially given the operating leverage? When do you expect to turn profitable?

8. Do you comply with the privacy laws and regulations in each country?

When a New Economy company's business model involves collecting, analyzing, and monetizing the data on end-user behaviors, investors are concerned about whether the company complies with national privacy laws and regulations. In addition, as laws and regulations become more stringent over time, investors are also concerned about whether this trend will inhibit the company's growth potential and affect its long-term competitiveness.

9. What is your current shareholding structure? Who are the major institutional investors? What is your IPO plan?

In terms of shareholding structure, for publicly listed companies, investors care about the management's ownership and the major institutional investors, and for private companies, investors are interested to know the timing of the IPO and the choice of the place of listing.

When a New Economy company enters the late stage of the capital market or goes public, it must establish continuous communication channels with investors so that it can leverage the capital market to support the company’s growth in the mid-to long term. Detailed, transparent, and accurate communication with investors about the company’s mid to long-term development strategy is one of the keys to maximizing shareholder value.

The QIC team is comprised of experienced industry professionals that have worked in major sell-side and buy-side companies. We leverage our knowledge in the industries and the relationships with investors and assist companies and investors in achieving effective two-way communication to enhance shareholder value. QIC also supports our clients with many years of experience in corporate access services. We plan, schedule, and execute tailor-made roadshows and targeted investor events for high-quality corporate clients. If you are interested in learning more about our services, you are welcome to contact us.

Contact: yvonnehuang@qtumic.com