2023 BrainChip Discussion, page-413

Ah Brainchips loves,

Arrangements that allow small companies to raise new capital on the back of retail enthusiasm are not without risks. Louise Kennerley

The little known LDA Capital was founded in 2018 according to its website that lists former investment banker Anthony Romano and Warren Baker as its leaders.

While it invests extensively around the world in public and private companies, LDA has found a happy hunting ground at the speculative end of the Australian sharemarket.

It has been involved in financing some of the ASX’s most divisive companies including Brainchip, Skin Element and GetSwift – which, having defected to Canada, has this week filed for administration.

Related Quotes

BRNBrainchip Holdings

$0.510-13.56%

Feb 22Aug 22Feb 230.5001.0001.500

View BRN related articles

LDA Capital’s financing model is intriguing and, while it does appear well suited to speculative growth companies that need capital but lack institutional support, it’s not without risks.

The way a typical LDA financing arrangement works is as follows: LDA will agree to provide a set amount of equity financing to a company – say a minimum of $10 million and a maximum of $50 million, over a certain period. The company, at its discretion, can issue periodic capital calls that draw on the funding.

When a call is made, a certain number of shares are issued to LDA Capital, which then sells them into the open market over, say, 10 days.

The number of shares issued to LDA is limited by the average turnover of the stock to avoid it being stuck with more shares than the market can absorb.

LDA does not pay for the shares upfront, only on settlement. The price it pays for the shares (that is, the amount of new capital raised) is based on the volume weighted average price only after the call is made, less a discount of about 10 per cent.

It’s an arrangement that appears well suited to small companies that have drummed up solid retail interest through penny stock websites and sharemarket forums, yet haven’t been embraced by the big end of town.

LDA Capital’s most high-profile Australian play certainly fits that brief: Brainchip, which has surged up the market cap ranks and was newly admitted into the S&P/ASX 200.

Brain explosion

Brainchip has had financing arrangements in place with LDA since August 2020 in which it could call on a minimum of $20 million of financing and a maximum of $45 million of capital over a one-year period. LDA was also paid fees and granted over 100 million options, netting tens of millions of dollars of profit