The Brainchip Holdings Ltd (ASX: BRN) share price is under pressure on Tuesday.
In morning trade, the semiconductor company's shares are down 6% to 69 cents.
As you can see below, this means the Brainchip share price is now down by a third over the last 12 months.
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Why is the Brainchip share price falling?
Investors have been selling down the Brainchip share price today after the company effectively launched a capital raising.
Rather than raise capital the traditional way, Brainchip is able to raise funds via its agreement with US based alternative investment group called LDA Capital.
Essentially, when required, Brainchip will issue LDA Capital with a certain number of shares at a reasonable discount. The investment group then has the option to sell these shares on-market for a quick profit.
On this occasion, Brainchip has submitted a notice to LDA Capital to subscribe to 30 million shares, with an option to subscribe for an additional 10 million shares subject to approval.
How much is Brainchip raising?
At this stage it is unclear how much Brainchip will raise from the issue of the 30 million shares. That's because the pricing of the shares will depend on the issue price and the pricing period. The latter is expected to be 11 January to late March or early April.
Though, based on the current share price, the 30 million Brainchip shares being issued have a market value of $20.7 million.
The company explained that the issue price will be 91.5% of the higher of the average daily volume weighted average price (VWAP) during the pricing period and the "minimum price" notified to LDA Capital by the company. It is unclear how the latter is calculated.
One thing that this raising of funds does have in common with a traditional capital raising, is that existing shareholders will be diluted given the discount that is being offered.
In addition, if LDA Capital doesn't want to hold onto the shares, which appears to have previously been the case, there could be a fair bit of selling happening once the shares are issued, which could weigh on the Brainchip share price.
Why raise funds?
As of its most recent quarterly update, Brainchip is generating little by way of cash receipts and burning through its funds at a rapid rate. This means that additional funds will be required to keep the business operating.
In addition, management explained that it plans to use the funds to support its growth initiatives, including the taping out of another chip and growing its salesforce.
Brainchip CEO Sean Hehir said
Additionally, we will further expand our go-to-market capabilities by hiring sales personnel in key international markets, as well as increase our domestic sales and marketing headcount.
Time will tell if this leads to the company generating sales that justify its $1.2 billion market capitalisation.
