Does Investing in a Company or Stock Help the Company?

When you find a company you believe in so much, you’re likely to do all you can to support and help them grow. You could follow them on social media, talk about their products in your immediate circle, and buy more products from them. People believe investing in the company or buying its stock as another alternative, but does it really help the company?

Investing in a company or stock can help the company directly if your investment came in the brand’s early days or during an initial public offering (IPO). On the other hand, investing in an established business or buying their stock can help them but only in indirect ways. 

The rest of the article will look at how your investment in a company or stock can help it directly and indirectly. Later in the article, I’ll also discuss other ways you can help a company without investing money or buying stock.

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When Investing in a Company or Stock Helps a Company Directly?

In the early days of many companies, they often needed an injection of cash to scale the business or take it from a small startup to a stable business. The amount of cash required depends on the scope of the business, its current lifecycle, and other such factors.

The first port of call for such business owners is to seek funds from angel investors. Others borrow money from lenders. If you’re privy to the cash needs of a company at this level and invest money into the company, you’re directly helping them achieve their goals.

For slightly bigger companies that have reached the stage of running an initial public offering, the better option would be to sell shares in the company to generate the capital they need. So, a company that needs $5-6 million may choose to sell a million shares at $5-6 per share. After the fees paid to the managers of the IPO are deducted, the brand will get the money it needs.

If you buy the shares during the IPO, you’re helping the company directly because the money goes to their coffers. The IPO approach helps companies avoid incurring debt or having to cut a large stake in the business to an angel investor. Also, by avoiding debt, the company can focus on growth and expansion instead of worrying about accumulating interest payments.

With the money realized in an IPO or from angel investors, most companies will do the following:

• Launch new products. Adding new products to their existing line can open up an income stream for the brand, allowing them to reach new customers and increase return patronage among their current clientele.
• Increase production. The brand can significantly improve production if the money can help build new factories or increase machinery and manpower in existing factory complexes. Higher production will improve turnaround times, complete orders on time, and target new markets.
• Hire more staff. The global employment landscape is such that the best candidates are always in demand. The competition is more pronounced in certain sectors compared to others. If the business you’re looking to support is in the more competitive sectors, your investment can help them offer more competitive rates to retain their best heads and recruit even better ones where necessary.
• Increase marketing. Word of mouth goes a long way in helping many businesses grow, but it’s never enough. These companies will use some of the funds generated to increase their marketing effort and improve brand awareness in the markets they cover.

So, investing in the company or stock at this stage helps them. In return, you get the satisfaction of knowing that you contributed to the growth of a company you love, and of course, the chance to profit from their success (or share in their failure) as the brand becomes more valuable.

When Investing in a Company or Stock Helps a Company Indirectly?

After a company has grown in popularity over the years and become one of the most valuable brands around, it won’t need to borrow money for expansion or rely on IPO money. They typically won’t have any more shares to sell directly to customers.

Therefore, if you invest in stock from the company, you’re only paying money to another investor who has elected to sell some of their shares. The money never goes back to the company at this stage if you buy shares from the open or secondary market. Your broker takes the commission for facilitating the sale, and the rest of the money you doled out goes to the stock seller.

However, investing in the company in this way can still benefit them indirectly—as long as enough people are doing the same. At macro level, your investment can help them in the company in following way:

• Improved value. The perceived value of a brand comes down to how many people believe in them and what they do. A company that generates billions in revenue and millions of shareholders has a higher value than one that’s not yet at that level. Therefore, investing in a company’s stock can add a drop to the value bucket.
• Rising stock price. A company’s share price represents how much an investor would be willing to pay to own its stock. As long as people are willing to pay the stock price, it’ll likely keep soaring—and with it, the brand’s value. So, investing in a stock helps improve the value of the brand, albeit indirectly.
• More brand visibility. If you buy more stock or invest in more products from a brand, you’re improving its visibility. Your stock purchase may help push the company’s stock towards the “Gainers” or “Hot” listing on most exchanges and other market-related websites. Your product purchase can help introduce more people to the brand’s products, further increasing their reach.

Remember, the company can only feel the impact of indirect investment when enough people are committed to doing the same thing.

Other Ways To Support a Company

If you’ve found a company you love, and you want to support them directly or indirectly, coming up with a lump sum for angel investment or buying shares sounds like the logical thing to do. But what if none of them are realistic? You’ll have to support in other ways, including the following:

• Recommend products to your immediate circle. The world is more connected than ever, giving the average person more power. Your 20,000 friends and connections across all your social media profiles will pay attention if you start raving about a product. In fact, such recommendations are more powerful than other forms of advertising.
• Share positive news about the brand. Regularly sharing positive news about the company is a good way to put them in a good light in the eyes of the public. It’ll help draw more interest from people who may not have heard about the company in the past.
• Becoming a volunteer. Does the brand need volunteers to get stuff done? Shoot them a message, and you could find yourself working for them and contributing to their overall growth. Newer businesses can take volunteers in the areas of delivery, social media marketing, customer service, and more.

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Conclusion

Investing in a company or stock can help the company directly or indirectly depending on its business life cycle stage. Companies in the capital-raising stage will notice a $100,000 investment more than those already listed on the NYSE. In the former example, you could get personalized recognition. In the latter, you’re likely only paying that money to another investor selling their shares.

If you love a brand and want to support them, pay attention to its stage in the business lifecycle and contribute your quota in any way you can.

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