The Brainchip Holdings Ltd (ASX: BRN) share price has been on a rollercoaster ride of late.
Shares in the ASX computer chip processor have gained 40% in the last month, but have lost 12% in just the past week.
According to the Australian Financial Review (AFR), a relatively unknown US-based investment firm has played an influential role.
The investment house LDA Capital reportedly has a financing arrangement with Brainchip. And it seems the company is not the only ASX micro cap it’s supporting.
But more on that later. Let’s focus on Brainchip first up.
Brainchip and LDA Capital
According to the AFR, Branchip’s financing arrangement with LDA Capital allows it to access between $20 million to $45 million across a one-year period. This arrangement reportedly started in August 2020.
In return, LDA Capital is paid fees and provided 100 million options, leading it to bank tens of millions of dollars, the AFR reported.
LDA Capital decided to exercise 75 million options in January 2021. Half were exercised at an issue price of 15 cents a share and the other half at 20 cents per share.
The AFR also noted Brainchip had requested an extension to draw the minimum amount under the facility, enabling it to access a further $35 million.
LDA Capital’s latest ASX coup is Hawson Iron Ltd (ASX: HIO) which, in December 2021, said it had secured $200 million in funding.
What is Hawson Iron?
The business holds a 100% interest in the Hawsons Iron Project outside Broken Hill in New South Wales, as well as other magnetite interests in the emerging Braemar Iron Province.
The project is striving to produce the world’s highest grade iron product to steelmakers who understand the benefits of producing ‘green steel’. That’s according to the company’s latest quarterly report.
Similar to Brainchip, Hawson Iron is yet to generate a profit and both companies remain highly speculative investments. But this appears to be the type of business that LDA Capital caters for globally.
GetSwift Ltd was another company within LDA Capital’s portfolio.
The former ASX-listed logistics software company, founded by former media executive Bane Hunter and retired AFL player Joel Macdonald, recently filed for bankruptcy, according to media reports.
Tread with caution
Unprofitable companies with unproven business models are often risky. When you add in significant leverage, it often creates a recipe for disaster.
Whilst GetSwift presents the worst-case scenario, I believe it’s imperative for investors to tread carefully in such murky waters.