Dangerous Delay

Dennis McCarthy – dennis@boustead1828.com – (213) 222-8260

My colleagues and I at Boustead noticed what may be a dangerous trend among microcap public companies.

When we suggest that microcap public company management should take advantage of the favorable stock market environment to raise some capital, many microcap CEOs and CFO’ tell us they want to wait before raising capital.

Wait for what?

  1. Wait for a Higher Stock Price?

In general, microcap valuations are relatively high now according to an index maintained by LD Micro, the well-respected independent resource.

To quote LD Micro’s September 17, 2017 email  – “After several attempts and a few close calls, the LD Micro Index finally hit an all-time high on Friday.”

Microcap stock prices might rise to yet newer highs, but there’s no certainty.

  1. Wait for Projected Performance Improvement?

We know that company management is often optimistic about a company’s future performance.

Plus, wouldn’t having more capital actually help management to achieve the performance improvement?

  1. Wait Until the Capital Need is Urgent?

Capital is not always available for microcap companies.

We’ve experienced periods, sometimes long periods, when microcap companies can’t access capital at any reasonable price.

Also, raising capital can take longer than expected, even when it is available.

Take Capital When Available

Our Advice is Take Capital When It’s Available

For those who are optimists, waiting for a higher stock price, think of it as averaging up.

For those who’ve lived through periods when capital wasn’t available to microcap companies, recall the anxiety and avoid it this time.

As the Saying Goes “Get Your Umbrella Before the Rain Starts”

It’s ironic but capital is most available when not needed.

Companies raising capital now may have more alternatives, so they can choose an attractive structure.

Microcap Funds Have Capital

At Microcap Funds, Money Is Burning a Hole in Their Pocket

As I noted above, recently, microcap funds have had good performance and fundraising has been productive.

Microcap funds have capital to invest and pressure to put it to work.

Microcap funds typically aren’t very large.  Fund managers want to deploy their capital and then raise another fund.

Investor Preferences

I would note a good development for both managers and microcap companies, many of the new funds permit their fund managers greater flexibility regarding investment structure.

In another article, I’ll discuss those features which seem to be most appealing to microcap public investors.

Consider these when preparing for a financing.

Please contact me to discuss your capital market goals.