S2-E5 | Communicating with Shareholders and Regulators

Transcript

SPEAKER_01 0:02

Hi everyone, I am Joshua Johani here with our co-host Ricardo Overlander in our podcast, The Technical Founder: Advanced Concepts in MA and Investment Banking. We're currently in our power alignment and communication series. And today we're in episode five, communicating with shareholders and regulators. How are you today, Ricardo? Very well. And you, Joshua? I am doing very well. We were having a discussion prior to this about some upcoming guest speakers that we're having in our podcast. And we'll withhold those names from our audience today, but we'll be very excited to announce those in the coming week. We got some really strong names that have indicated some interest. So we'll be updating everybody on that once we have updates. Ricardo, communicating with shareholders and regulators. So from the point of view of the technical founder, I think it'll be valuable to break this up into shareholders, shareholders, regulators separately. So let's do regulators first. So from the technical founder's point of view, the regulators can be the FDA if you're in biopharma. They can be the FTC if you're in, you know, pretty much any consumer product, nutraceuticals, et cetera. Um, they could be the SEC, FINRA, et cetera, if you're in financial services. And they're, you know, there's a variety of different kinds of regulators once you get to a certain kind of size. For the technical founder that's engaging with the regulator, which is definitely a persona that is going to be more novel for them. Founders don't usually spend the majority of their time talking to regulators. What would you advise a founder to consider when they're empathizing with or thinking about how to work with a regulator?

SPEAKER_00 1:47

First of all, at this stage, there's a fundamental concept to be embedded. Because this is the point where the transaction moves beyond internal management. You're out there in the external world. And shareholders and regulators are very different stakeholders, but they share something important. Both care deeply about credibility. So specifically on regulators, uh, we are dealing with a group of individuals who don't need actually to be persuaded. They need clarity at the end of the day. And they observing changes, and they need actually to be involved in having credible answers to their credible questions. We have to take them seriously because the tone changes. Regulators, you're not selling the transaction, you're not explaining it. That's a very different exercise for those involved. That distinction matters. Regulators do not want hype, they want clarity, evidence, and consistency. You need to be precise about market impact, competitive dynamics, consumer or customer implications, ownership structure, compliance history, governance, any sector-specific concerns. And the worst mistake is to underestimate regulatory scrutiny or assume that commercial logic alone is enough. Regulators operate through risk, precedence, and public interest.

SPEAKER_01 3:29

They want to make sure that you're following the rules. And some regulators, it depends on the regulator, the profile of the person reviewing the deal. Some need that following to be explicit and some need it to be implicit. And I think that the founders we've worked with often rely on implicit following the rules. And uh not every regulator will give them that kind of credit right out of the gate. And so they need to have really strong reporting and really strong evidence for how they are explicitly following the rules. And they need to have that before they start talking to the regulators. If they're trying to make that on the fly, when they start getting regulatory inquiries, that's where they can start to rely on, I think you use the word hype, Ricardo. Yep. Um, or or shallow arguments. And uh, that's not a good place to be with regulators. You don't want to act like the regulators need to take it on a leap of faith or do a bunch of commercial assumptions that a customer may do, but is not part of the regulator's job when you're following the rules.

SPEAKER_00 4:32

Absolutely.

SPEAKER_01 4:33

For shareholders, Ricardo, we've talked a bit about the board, we've talked about executive teams. Uh, obviously, we talk about the technical founder all the time. But here we wanted to kind of address shareholders on a more um broad basis, like for a publicly traded company or something like that. And so when you think about investor relations and talking to numerous shareholders, what are those thought processes that a founder should have when communicating with them?

SPEAKER_00 5:03

It's all underpinned by a clear concept, value rationale. Shareholders need that. They need to understand why this transaction makes strategic sense, why the price and structure are reasonable, why the timing is appropriate, what alternatives were considered, and how the board fulfilled this responsibility. Because communication with them cannot sound improvised. It must be coherent and defensible. In public companies, for instance, this becomes even more important because communication is not only persuasive, it's also legal, regulated, and reputation. And narratives play a key role here. A weak narrative creates doubts, whereas a strong narrative creates confidence.

SPEAKER_01 5:52

I would add that you also need to be able, as a founder, to communicate very complex deep analysis in very few words, which is a very difficult thing to do. And the best executives have mastered this ability. But to Ricardo's point, the shareholders are looking for deep fundamental analysis, but they're not looking for 8,000 words. Uh, we're actually recording this episode uh coming up on SpaceX' IPO. And I was reading about one of the uh public filings that was 2,000 or 6,000 words that was written by Elon Musk. And when you compare that number of words to what the size of SpaceX and SpaceX's mission, it is an impressive expression of brevity. And even that, you know, I think most people probably could have could have seen that be a little shorter. People like to hear from Elon Musk and his visions. But that's that's hard to do, and it doesn't come naturally as that deep analysis that's detailed in a few number of words. When we look at takeaways, Ricardo, what are the major takeaways that you would advise technical founders as they consider how to communicate with regulators and shareholders?

SPEAKER_00 7:13

Starting with shareholders, one has to understand that they need a defensible value narrative. They need to understand not only the deal, but why the deal at this time, on these terms, makes sense. Regulators, on the other hand, require clarity, not persuasion. The stronger your evidence and consistency, the better your credibility. In external confidence depends on internal discipline. If the process is weak, communication cannot fully repair it. If the process is not strong, I mean you cannot spin doctorate. You have to really, first of all, make sure that you have a solid, robust process, and then communication will follow through naturally.

SPEAKER_01 8:04

We used a word earlier in this episode, uh, and it was hype. We talked about not relying on the hype. And that actually dovetails into a lot of language and vocabulary we used early on in this series, as well as our A-Z framework series, is that founders and executives are so used to being able to talk to customers, and they're so used to using vocabulary that is hyperbolic and marketing-ish, sales-y and marketing-ish, um, that they they just are so they've got it memorized. But that doesn't definitely work with regulators and it can, in fact, be detrimental to regulators, but it also doesn't work with large shareholder bases and people who are very familiar with with these transactions. And so it's important for larger sort of mass audience communications or more formal communications where they're not as familiar with the transaction, that founders and executives think about how to maintain that balance in everything that they share. So thank you everybody for listening to our podcast. I'm Joshua Jahani. We'll see you on our next episode where we talk about communication with customers and suppliers. Have an excellent day.