Sponsored Equity Research: Unlocking Value for Small & Micro-caps
- Abhik Shome
- Mar 24
- 17 min read
Updated: May 13
The capital markets can be daunting for a small- or micro-cap company, especially when they are struggling to get visibility in a crowded investor space. Many of these companies end up getting overlooked, unable to attract investor attention to secure funding for their future growth.
That’s where sponsored equity research can play a big role and be a game changer.
Sponsored or paid equity research provides a strategic avenue for these companies to showcase their financial performance, competitive advantages, and growth potential.
At Quantum Media Group, we have prepared this comprehensive guide to explore the nuances of sponsored equity research and its critical role in enhancing investor interest and driving capital into small- and micro-cap companies.
Drawing from 20+ years of Quantum’s experience creating equity research reports for publicly traded companies from a wide range of sectors, I will equip you with the essential knowledge to leverage paid equity research effectively for your company.
We will connect the dots and explore all the equity forensics that laser-sharp investors focus on and how a sponsored equity research report can effectively address them.
You will discover:
The fundamental principles of equity research and its significance in the investment landscape.
Strategies for disseminating research to reach your target audience effectively.
Role of sponsored equity research in shaping perceptions.
Key components that make up an effective equity research report.
The key aspects to look for when hiring an equity research firm
If you follow this guide closely, you will have a vastly improved understanding of equity research and how to select the right equity research firm for your organization.
I have even included an equity research firm evaluation checklist that you can get for free (read the article closely for details on how to get it for free).
Let’s get started.
What is equity research?
Equity research is the detailed analysis and reporting of a company to determine whether it's worth investing in. In other words, it is a diagnosis of a company’s vital signs and checking if it's in tip-top shape.
This analysis involves covering multiple aspects of a company, such as its financial performance, growth potential, market positioning, moats, and more.
The goal is to determine whether investing in the company would be profitable for investors.
Understanding these factors is the difference between a wise and an unwise investment.
What is sponsored equity research?
Sponsored equity research or paid equity research is almost the same as equity research, with the additional factor that the research is paid for by the company on which the research is done (known as the issuer company) to invite investments in the company.
In other words, sponsored equity research is the process of analyzing a company’s financial performance, growth prospects, competitive advantages, strengths, weaknesses, and risks, paid for by the company conducting the research.
If we have to go back to our diagnosis analogy, the ultimate purpose of a paid/sponsored equity research report is to showcase the good health of the company and attract investor attention and capital to the business.
The current landscape of sponsored equity research for small- and micro-cap companies
Small- and micro-cap companies are in a tough spot. They used to get support from brokerages and investors (both institutional and retail) with coverage and investments, but things have changed.
There’s been a noticeable drop in research from these firms as increased frauds and malpractices have made these stocks less attractive.
Analysts have to be more intense in their scrutiny to mitigate risks, leading to higher research costs.
Further, the SEC is increasing surveillance of these stocks, sending out an overall negative perception in the capital markets.
While these checks and balances are essential to protect investors from fraud in the micro-cap space, they inadvertently make the entire space less attractive, keeping genuinely good promoters and quality companies from receiving the attention they deserve.
Investors, especially retail ones, often rely on analyst reports and theses to guide their choices.
Less coverage means fewer investors and asset managers are considering investments in these smaller firms, making it difficult for small- and micro-cap companies to raise capital.
So what can small- and micro-cap companies do to gain investor attention?
A key solution is to build strong relationships with investors and find new ways to share a favoring thesis about their company.
This is where sponsored equity research comes into play.
With the right equity research firm, small- and micro-cap companies can take charge of their narrative and get analysis coverage, attract investor attention, and raise the required capital for growth.
Benefits of sponsored equity research
1. Increasing awareness about issuer companies
Small- and micro-cap companies often fly under the radar and struggle to get visibility.
However, effective paid equity research can put them in the spotlight they deserve. These reports share important details about the company's operations, products, and market opportunities.
When a detailed equity research report makes valid arguments about a stock's potential, it sparks interest and confidence among investors. This increased attention boosts market presence and opens doors for growth and investment.
Additionally, usually these research firms already have strategic connections with brokerage firms, institutional investors, investing conferences, and financial media. They can use these strategic relations to promote the equity research report on behalf of the issuer company and get the right kind of attention.
Equity research distribution channels:
Sponsored equity research reports can help small- and micro-cap companies get noticed.
However, getting those reports into the right hands is crucial.
Here are some effective channels equity research firms use to distribute their research reports:
Financial news websites
Established equity research firms often have relationships with top financial media outlets. They can make a report reach a wide audience by publishing about it on platforms like Bloomberg, Seeking Alpha, Nasdaq, Reuters, and Yahoo Finance. Investors trust these sources, so getting featured here can boost visibility.
Brokerage firms and institutional investors
Sponsored equity research firms share research reports with key ecosystem players, including brokerage firms and institutional investors, compounding the targeted reach.
Social media
Social media offers a fresh way to spread the word. Equity research firms can use Twitter and LinkedIn to share insights from their research reports, spreading information quickly among their niche-focused followers (usually retail and institutional players) and getting people talking.
Targeted marketing campaigns
Paid equity research allows companies to tailor their messages to specific investor groups.
For example, teaming up with a research firm like Quantum can help connect with fintech-focused institutional investors hunting for new ideas.
Getting equity research reports out there is key as small- and micro-cap companies can use these channels to grab the required attention. It’s all about ensuring the right people hear their stories and see their potential.
How Quantum helped Ideal Power reach an untapped investor base with strategic research distribution:
Background
Ideal Power Inc. (NASDAQ: IPWR) is a micro-cap company focused on developing advanced semiconductor technologies, particularly its innovative B-TRAN technology.
This technology has the potential to disrupt various industries, including electric vehicles and renewable energy. Its SymCool Power Module is expected to revolutionize the circuit breaker market.
Impact of Quantum’s reports
Quantum Media Group played a crucial role in enhancing Ideal Power's investor reach by leveraging its extensive distribution network. Their strategic placements featured Ideal Power in key market hubs, such as Seeking Alpha, Nasdaq.com, and Quantum's own podcast.
1. Seeking alpha coverage:
Quantum posted an equity research report on Seeking Alpha, highlighting Ideal Power's commercialization of the SymCool Power Module and emphasizing its potential to disrupt the $26 billion circuit breaker market. This feature helped attract attention from active Seeking Alpha users, as it detailed Ideal Power's strong cash position and zero debt, positioning the company as a compelling investment opportunity.
2. Nasdaq.com exposure:
Next, Quantum featured the stock on Nasdaq.com, enabling a broader reach to institutional and retail investors alike. This visibility contributed to the increased confidence in Ideal Power’s B-TRAN technology and the company's progress in partnerships with significant industry players.
3. Ari Zoldan’s podcast:
By being featured on Ari Zoldan's podcast, Ideal Power benefited from an influential platform that connects with a diverse audience. The discussion surrounding the company’s innovative technology and its applications further engaged potential investors.
4. Interview with Jane King, host of NASDAQ MarketSite:
Ideal Power’s interview with Jane King, host of NASDAQ Marketsite, garnered additional exposure. The conversation covered the company’s latest advancements and strategic goals, further establishing its presence in the semiconductor industry.
2. Providing marketable information to influence investor behavior
Investors often view small- and micro-cap stocks as risky due to lack of transparent information and overall fraudulent practices in the space. As a result, very few investors get involved, making funding more difficult.
This is where quality research reports can be a game-changing exercise.
Thorough equity research provides a detailed company analysis, influencing investor behavior.
Positive research reports validate a company’s business strategy and growth potential, making these companies more appealing to investors. This ultimately leads to higher participation from both retail and institutional investors.
Conversely, negative reports can wake up the issuer company's management, signalling the need for corrective actions that improve long-term performance.
Companies can adjust their strategies based on this feedback, benefiting from constructive criticism.
Take Quantum, for example. Our well-researched reports have made a real difference for our small-cap clients. By offering thorough analysis, Quantum has helped improve investor sentiment toward these companies.
This boost has led to more retail investors getting involved and surging stock prices, broadening the investor base.
Coya Therapeutics: A Quantum client case study
Coya Therapeutics is a biotechnology company developing innovative therapies for neurodegenerative diseases and autoimmune conditions. The company leverages Treg modulation to create treatments aimed at restoring immune balance and mitigating inflammation.
With a promising pipeline, Coya aimed to address the significant unmet medical needs in these therapeutic areas.
Quantum published a well-researched equity research report on Coya Therapeutics, which played a pivotal role in improving investor sentiment toward the company.
By effectively communicating the promising results of clinical trials, highlighting financial stability, and contrasting Coya's therapies with less favorable options in the market, Quantum helped drive increased participation from retail investors.
This shift eventually reflected positively on Coya’s stock prices and positioned the company as a noteworthy player in the neurodegenerative disease treatment landscape.
3. Reduce volatility
Small- and micro-cap companies often struggle with low trading volumes, leading to high volatility in stock prices due to comparatively minor changes in volume.
Usually, if the beta (measurement of stock volatility) is greater than one, it means that the stock is more volatile than the market, making it less attractive for investors.
When research firms publish reports on small-cap stocks, it boosts visibility amongst institutional and retail investors.
Increased investor attention leads to higher market participation. More trading activity helps stabilize stock prices, reducing volatility and making it less risky and more attractive for the general investor community.
Quantum’s firsthand experience:
When Quantum issues a report highlighting a small-cap company’s growth potential and positive outlook, it can trigger a buying uptick. Both institutional and retail investors pay attention to the findings.
This surge in interest boosts trading volumes. It also lowers perceived risk, making it easier for the company to raise capital at better rates.
In short, equity research does more than just provide information.
By increasing visibility and encouraging market participation, it improves liquidity for small- and micro-cap companies. This leads to a more stable market environment and lower capital costs, ultimately benefiting these companies as they seek to grow and expand.
4. Lower cost of capital
Lowering the cost of capital can help small- and micro-cap companies thrive.
Here's how equity research helps in lowering the cost of capital:
When a sponsored equity research report generates buzz, it attracts attention from the investment community.
With increased investor interest, trading volume increases, leading to increased liquidity and low volatility and attracting bigger institutional investors.
With more investors involved, the perceived risk drops further.
With reduced uncertainty, the buying and selling of shares becomes easier, creating a stable investment environment.
Stable companies with strong liquidity profiles tend to get better terms during capital rounds or when issuing new equity.
These companies can also negotiate better interest rates when issuing bonds and attract more favorable investment terms, saving money and achieving flexibility for growth.
Essential components of an equity research report
When commissioning an equity research report, make sure it covers the following aspects:
1. Company description
Overview: The report should start by painting a vivid picture of the company. It should share its origins: when and how it was founded, its mission, and the core activities that define its business. This sets the stage for understanding the company's identity.
Products and services: Next, it should dive into the company's key products or services. It should highlight what makes them special in the market and how they meet customer needs, making it relatable to anyone who uses these products.
2. Market opportunity
Market size and growth: This section explores the company's operating environment. The report should analyze the target market size and discuss growth trends, highlighting potential expansion opportunities that can excite investors.
Key drivers: It should identify the main factors that could drive demand for the company's offerings. Consider economic trends, consumer behavior, and technological advancements that could play a pivotal role.
3. Share structure
Shares outstanding: This section should break down the share structure in simple terms. It should explain how many shares are available, including details on common and preferred shares, so readers understand the ownership landscape.
Insider holdings: Discuss insider ownership percentages and highlight significant shareholders. This insight can give readers a sense of governance dynamics and potential influences on decision making.
4. Competition
Competitive landscape: The report needs to have an overview of the industry's key competitors. This consists of discussing their market shares and how they compare to your company, creating a context for its competitive position.
Differentiators: The report should highlight what makes this company stand out from the competition. Focus on unique product offerings, pricing strategies, or innovative approaches that could give it an edge.
5. Management
Leadership team: Next is the introduction of the management team with background details of key executives, their experiences, and what drives them. The idea is to add a human element to the leadership.
Strategic vision: This consists of discussing management's vision for the company's future and their track record in executing it. This establishes confidence in their ability to steer the company forward.
6. Financial fundamentals
Historical performance: This deals with analyzing past financial statements like income, balance sheet, and cash flow in a transparent manner that tells a story about the company’s financial health over time.
In his book Financial Shenanigans, Howard Schilit, dubbed the "Sherlock Holmes of accounting" by the CFA Institute, highlights crucial warning signs of corporate misbehavior. Schilit identifies key indicators like dishonest management, changes in auditors or CFOs, and large discrepancies between cash flow and net income as warning signs investors should look for.
As a result, the report must showcase the fundamental analysis in a transparent way.
Key metrics: Highlight essential financial metrics such as revenue growth, price-to-earnings ratio (P/E ratio), return on capital employed (ROCE), price/earnings to growth ratio (PEG ratio), and return on equity (ROE) to illustrate the company's performance and potential.
7. Financing risk
Debt levels: The report should assess current debt levels and overall financial health and explain what this means for the company’s stability.
Liquidity position: Evaluate how easily the company can access cash when needed.
8. Catalysts
Upcoming events: Identify the key events or developments that could impact the company’s valuation and stock price, such as product launches, partnership talks, and pending regulatory approvals.
Market trends: Discussion of broader market trends that could act as growth catalysts. Share insights into how these trends might align with the company's strategy.
9. Current valuation
Valuation techniques: The report should provide an easy-to-understand overview of the valuation methods (like discounted cash flow (DCF) or PEG ratio) without delving too deep into jargon.
Valuation summary: This summary presents the company's valuation compared to its historical performance and peer companies, using relatable comparisons.
10. Future expectations (e.g., new contracts, revenue forecasts, earnings, etc.)
Growth projections: Discuss anticipated growth in revenue and earnings based on new contracts or strategic initiatives. Use real-world examples where possible to illustrate potential impacts.
Forecasting models: Explain any forecasting models used to project future performance in a straightforward manner, helping readers understand how conclusions were reached.
11. Price target with supporting logic
Target price: Establish a target price for the stock based on a thorough valuation analysis.
Rationale: The report needs to clearly articulate the reasoning behind this target price. Include key assumptions and market conditions influencing that target so readers can see the thought process behind your analysis.
Legitimacy of issuer-paid research
Importance of choosing the right research firm
Choosing the right research firm is vital in maintaining credibility and trust for your company in the investor base. The key is to partner with an independent firm that can provide unbiased evaluations.
This focus on independent analysis is important as it is based on facts and not influenced by "story stock" narratives pushed by interests within the company or brokerage. Investors are more likely to trust reports from a credible third party as they feel confident that the information is reliable and objective.
On the other hand, partnering with firms lacking credibility can lead to poor-quality research or biased analyses, damaging the company’s reputation.
For example, if a sponsored equity research report exaggerates a company's strengths and glosses over its weaknesses and risks, investors might feel misled once they discover the truth. This can harm the company's reputation, making it harder to attract future investment.
Additionally, reports from less reputable firms may not be taken seriously by the investment community.
Having been in the industry for 20+ years, we've witnessed the ecosystem firsthand and seen how a company’s stock price nosedives due to biased reporting.
Not only that, but it can lead to legal issues if the equity research is found to mislead investors.
By working with reputable, independent firms, you can safeguard your company’s reputation while having the peace of mind of getting credible reports.
Unlock the secret to skyrocketing your company’s valuation with sponsored equity research
Curious about how you can use equity research to amplify shareholder value and expand your company’s reach?
Imagine directly tapping into 20+ years of expert insights from Ari Zoldan, CEO of Quantum Media Group, and discovering how equity research can transform your company.
Book a free discovery call with Ari and get a custom equity research plan outlined for you.
Ari will walk you through step by step on how to conduct equity research for your business and the distribution channels you can tap for maximum exposure.
As a special bonus, you will receive our essential equity research firm vetting checklist. This checklist tool removes the guesswork from choosing the right equity research partner for your organization, ensuring you make informed decisions every step of the way.
Don’t miss out on this opportunity to gain a competitive edge. Free booking spots are limited.
Factors to consider when selecting an equity research firm
To make sure that the equity research is effective and beneficial for your company, you need to spend a good deal of time choosing the right research firm.
Here are the main factors to consider:
1. Relevant experience
Start by looking for firms with a proven track record in your industry. They should understand the unique challenges and opportunities your industry faces, with a deep knowledge of niche market dynamics, regulatory landscapes, and existing competition.
Check their history with past clients. Have they produced successful reports that led to positive outcomes for other companies in your niche?
2. Vast investor network
A firm with a wide investor network can significantly boost your company’s visibility.
Established relationships
Choose a firm with strong ties with institutional investors, analysts, and financial media. These relationships can help facilitate introductions and enhance your company’s exposure. With the right connections, your story can reach decision makers in the investment community.
Access to key stakeholders
A robust investor network increases your chances of being noticed by key players. This exposure can lead to greater interest from investors eager to find new opportunities. When influential stakeholders are aware of your company, it opens doors for potential investments and partnerships.
3. Unbiased
Ensuring that research reports are unbiased is crucial for their credibility.
Importance of balanced perspectives
A good report covers both positives and negatives. This transparency builds trust as investors need honest assessments, not just overly optimistic views. Balanced reports help avoid misleading conclusions when only the good is highlighted.
Assessing past reports for bias
Review a firm's past reports to confirm that it provides unbiased analysis. Look for patterns of focusing solely on positives without discussing risks. Compare their recommendations with actual market performance to gauge accuracy and objectivity.
4. Accuracy
Accuracy in research reports is essential as investors look for reliable predictions and recommendations.
Metrics for evaluating report accuracy
Check how often the firm’s forecasts have been correct over time. If their predictions frequently align with market outcomes, it is a good sign of reliability. Look at the correlation between their recommendations and actual market movements.
Conducting due diligence on performance
Use tools and platforms that compile historical performance data on equity research analyses. This helps you see how past recommendations have fared over time.
5. Strong communication skills
Strong communication skills are a must when selecting a research firm.
Clear articulation of ideas
Look for a firm that breaks down complicated information into clear, concise reports and presentations. They should explain findings without jargon, ensuring everyone understands the key points.
Engagement with investors
Assess how the agency engages with clients and potential investors. Encouraging open dialogue and inviting questions about its research findings demonstrate that it values input and wants everyone to be informed.
6. Robust marketing strategies
An equity research firm’s marketing strategies can significantly boost the visibility of your company’s research reports.
Comprehensive promotional approaches
Ask about their strategies for promoting reports. Effective methods might include digital marketing campaigns targeting specific audiences or hosting webinars to discuss findings interactively.
Maximizing research exposure
The goal is to ensure the research reaches as many people as possible. A comprehensive marketing approach means your company’s story gets in front of a vast audience, sparking interest and encouraging investment.
Cost-benefit analysis of sponsored equity research
When considering sponsored equity research done by an independent research firm, it’s crucial to weigh the costs against the potential benefits. Let’s break down the cost to benefits of a paid equity research report for your company.
Strategic distribution
Though hiring an equity research firm can come with costs depending on the size of your company and the complexity of the report, it can come with the benefit of the hired firm’s pre-built distribution system.
For example, commissioning sponsored equity research through an established firm like Quantum Media Group can be cost-effective due to their pre-existing distribution channels and established relationships.
These systems streamline the process, allowing for significant cost savings while ensuring broad and efficient dissemination of your report.
Improved valuations
With the right distribution comes the right buzz. If your sponsored equity research report is distributed strategically to the right audience (such as financial media outlets and institutional investors), it can generate the right amount of buzz among the investor community.
This buzz usually has a grapevine effect reaching masses of retail investors. It can also push up the stock price and improve the valuation of your company. Higher valuations make it easier to raise funds for future projects or acquisitions.
If a company considers merging with another firm or issuing new equity, an improved market presence creates a positive feedback loop, boosting its strategic options.
Improved reputation
Beyond the numbers, there’s a qualitative side to consider. An increased stock price and improved visibility can enhance a company's reputation among investors, fostering trust and confidence and encouraging long-term loyalty. Companies that maintain strong investor relations often find it easier to navigate challenges and seize opportunities.
In simple terms, issuer-paid research comes with costs. With that said, the potential benefits, like increased stock prices and a stronger reputation, can far outweigh these expenses if managed wisely.
The key is finding the right balance that aligns with your company’s unique situation.
Conclusion
Issuer-paid research is a vital tool for small- and micro-cap companies looking to boost their market presence. Throughout our discussion, we’ve seen how these companies, often overlooked due to limited coverage, can gain massively from targeted equity research.
Filling the coverage gap
Paid equity research helps fill the gap by increasing visibility and attracting more investors. It provides detailed insights that grab attention and lead to better valuation metrics. As a result of this increased investor engagement, these companies cut through the market noise and position themselves as solid investment opportunities.
Final thoughts on paid equity research
Think of issuer-paid research as not just an expense, but a vital strategic investment. The long-term financial benefits can far outweigh the initial costs. Compared to traditional marketing or advertising, it often proves more cost-effective as it creates a direct link to investors and boosts company credibility.
The next step
Are you intrigued by the idea of using equity research to enhance shareholder value and extend your company’s exposure towards the right investor groups?
If yes, then you can secure a free discovery call with Ari Zoldan, CEO of Quantum Media Group, and receive a tailored equity research plan crafted for your company.
Ari will guide you through every step of conducting equity research and reveal the best distribution channels for maximum exposure.
That’s not all! As a special bonus, you'll receive our indispensable equity research firm vetting checklist. This tool eliminates the uncertainty in selecting the perfect equity research partner, empowering you to make confident and informed decisions.
Why this checklist matters for issuer companies
As an issuer company, partnering with the right equity research firm is critical to achieving accurate valuations, building investor confidence, and strengthening your market position.
Our step-by-step checklist empowers you to:
Evaluate research firms effectively: Ensure their expertise aligns with your vision.
Avoid costly errors: Make informed decisions to safeguard your reputation.
Note: Free booking slots are limited, so secure your spot now.
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