How to identify $3.67m in hidden capital
There are millions of dollars hiding in plain sight on your cap table right now.
And I know this because I have manually found dozens of them, and have the data to prove it. So in today’s article, we are going to cover:
- High net worth (HNW) vs retail investors (and why it matters)
- The value of HNW investors
- How I found the first HNWs, and how you can too
The difference between HNW and retail.
For those that have followed our journey, you will know that before InvestorHub, we helped companies raise cash from high net worth investors.
HNW investors are currently defined as people with either net assets above $2.5m or a gross income over $250k.
Those HNW investors are the ones that qualify under s708 of the Corporations Act to invest money in a placement without the need for disclosure statements or a prospectus. Commonly referred to “sophs” (nee sophisticated investors), they are the lifeblood of funding for any company with a market cap below $250m.
Outside of participating in a raise, they can also buy a lot of stock on-market. For most companies under $250m market cap, HNW’s can also strongly influence volume and share prices.
Needless to say, it is important to identify HNW investors on the register. For you, a HNW might be someone who owns $100k and, if they sell, could have a big negative impact. It might also be someone who only owns $5k now but could tip in $100k during your next raise
Knowing who is, and who isn’t, a HNW investor is paramount to raising capital, optimising volume, and building shareholder demand.
What is the average value of a HNW Investor?
From 2017 until 2022, we processed more than 10,000 bids from HNW investors - for those unfamiliar with the brokerage game, that’s a hell of a lot of bids. Fresh Equities also didn’t work with funds - this number is exclusive to HNW individuals only. So when we analysed the data to calculate the average and median value of a HNW, bear in mind that it was arguably one of the most accurate data sets to be doing it on.
What we found was that the average HNW placement bid was $54k, whilst the median was $34k.
As you can see, the median is much lower, meaning there are large outliers within the group that drag up the average. There are plenty of stories of random HNW investors on registers putting in $200k, $400k, or more into placements where they are either (1) high conviction or (2) highly opportunistic.
In addition, an average top 200 for a sub $250m market cap stock has 68 HNW investors on it. That is around a third of the top 200 and excludes the top 20 - most of which are HNW. In essence 68 of these remaining 180 investors are HNW.
So here you go - 68 investors with $54k on average each equals $3,672,000 in potential dry powder. Sitting there. Right now.
How I found this out, and how you can too.
InvestorHub has the infrastructure to do this automatically, and our clients get this updated on an on-going basis.
But when I first did this, I had nothing except a list of the top 200 shareholders, 2 hours to spend, and a bottle of red.
Disclaimer: The goal here is to get to 80% accuracy rather than 100%.
I would start doing a review after the kids were in bed, I must have done dozens this way over the time. I would get a top 200 shareholder report, scan it for people I knew, and then go through one by one, adding their contact address into a real estate portal to get the house value.
This was far from a perfect science, but it was largely telling.
Is the house a $500k unit or a $3m home?
Doing it this way I found many significant investors who sat in the middle of a company’s registry and, with a bit of work from management, were able to be fully engaged and supportive.
Today, we use much more specific targets and indicators, two of which I will share:
- Transaction and holding value.
If you are a sub $250m market cap stock, and someone has bought $50k or more of stock direct in one transaction then that is a strong indicator of HNW status.
Additionally if they have bought $100k total over time, then again a very strong indicator.
Could you do these things and not be a HNW? Of course - but not many true retail investors are making $50-100k punts. - Where they hold stock.
If someone holds their stock at CommSec, Bells, or Canaccord it doesn’t indicate anything. Your portfolio can be $10k or $10m and it wouldn’t flag differently.
But there are some brokers who only deal in HNW investors.
EL&C Baillieu / Ord Minett is one such shop who only works for HNW clients (and maybe their kids). If you have a shareholder who holds shares with Baillieu (their PID is 3118), then they are most definitely a HNW investor.
Knowing who these people are is ammunition in the fight to outcompete on the market. If you are interested in learning more about this and want some help on it let me know - happy to be a guide.