Small Caps, Placings & Logic

You gotta know when to hold 'em, know when to fold 'em, know when to walk away, and know when to run

Good Afternoon Team.

Anyone who’s taken the time to explore what money really is will have come across the concept of fungibility.

It’s the idea that one unit of money is interchangeable with another — an ounce of gold is the same as a different ounce, one BTC is equivalent to any other BTC, and a £20 note can be swapped for two tenners without any loss in value or meaning.

In traditional financial terms, that’s what makes money work.

But in the world of small cap equity financing, things aren’t that simple. In this space, money isn’t fungible. One pound raised is not equal to another, and it’s a lesson it can take time to learn.

The value of small cap capital is dependent on where it comes from — its origin, its intentions, and its long-term alignment. This is especially critical when dealing with high-risk, high reward non-revenue-generating companies that rely on external funding to grow.

The kind of capital you want is sticky. You want funding from investors who are in it for the long haul, who understand the vision, and who have the financial means to ride the inevitable volatility without panic selling.

These kinds of investors aren’t just buying a position. They’re buying into the story.

Take Helix as today’s example. They raised millions at just a 9% discount, backed primarily by a large private family office with over $1 billion in assets under management, as well as other institutional investors. This is what good financing looks like.

It mirrors the model used by companies like GMET and AMRQ — raise at minimal discounts, bring in long-term holders with deep pockets, and keep the effective free float tight. If you do that, sentiment holds firm and the stock rises.

Everyone — institutions, family offices, HNWs, and retail — is more comfortable holding because they trust that a massively discounted, confidence-eroding raise isn’t around the corner.

It’s really that simple.

On the other hand, if the only money available comes from a bucket shop — where investors demand warrants, dump the stock for a 10% flip, and ride the warrants for free — then the capital raised isn’t really helping. It’s a signal to the market that the company either lacks better options or doesn’t understand how destructive that kind of raise can be.

For the record, the term ‘bucket shop’ comes from shady old pubs that sold the leftover alcohol collected from tables — the literal dregs. That’s what some funding sources are in today’s market.

It’s important to stress that dilution, in and of itself, isn’t bad. If done well, dilution adds value. The idea is that even though your percentage ownership shrinks, the pie itself gets bigger — and ideally, your smaller slice is worth just as much, or more, than before.

But this only holds true if the capital is used efficiently - to drive growth, acquire strategic assets or shore up the balance sheet. If the money is raised at a steep discount or used poorly, the dilution destroys shareholder value instead of preserving it.

Of course, a modest discount is often worthwhile if it brings credibility to the shareholder register. A high-quality investor can be worth the 10% you gave up in price.

For example, funding from Tier 1 partners - like Anglo American & Arc Minerals, or Sovereign Metals & Rio Tinto - or from governments, with lots of companies chasing down grant and loan capital (think BRES and the DFC funding).

But basically, this is why a 10–15% discount is often seen as the sweet spot — enough to entice serious investors, without sending the message that risk levels are through the roof. Problems arise when companies offer both a large discount and warrants. That combination often kills sentiment, and once that’s gone, the share price can struggle.

And that brings us to an even broader point — logic doesn’t always rule the small-cap markets.

Some people invest based on fundamentals.

Others rely on charting.

But more than anything else, sentiment drives price action in this space. If you’ve spent any time on Twitter, Telegram, or the hellhole that is LSE, you’ll know this intuitively.

In small caps, especially those without current revenue, there’s always a base level of risk. There’s also a constant game of cat-and-mouse, with investors trying to sell out ahead of placings to avoid being diluted — which, ironically, increases the likelihood of a raise at a discount.

This is how sentiment feeds on itself, for better or worse. It also opens the door to manipulation — from boiler rooms spreading fear, to holders downplaying risk to protect their own position. It can get very messy, which is why DYOR — do your own research — matters.

Sometimes, this lack of logic works against good companies. Good businesses, like Power Metal Resources or TekCapital will often trade below the value of their cash and assets.

I’ve covered those two specifically in the past, but they’re not alone. Part of this can be explained by structural quirks — like a parent company holding the spin-out shares and not selling, which props up the valuation. But it doesn’t explain everything.

In the other direction, you’ve got companies like Smarter Web raising millions with ease despite limited backing — again, all sentiment.

It’s worth imagining a scenario where a pre-revenue company raised £10 million, parked it in a blue-chip portfolio, and used the returns to fund G&A forever. That’s arguably a great idea. But to many investors, it would look like dead money — cash just sitting there, not chasing the next big thing.

Sentimentally, it wouldn’t fly. Financially? Arguably sound.

That disconnect matters.

In the same vein, you could look at companies like Jubilee Metals, which is planning to sell assets for $90 million and eliminate all future funding risk - remember, this is a stock where placings are what is killing the sentiment.

Ergo, this kind of move should be seen as a major de-risking event. Yes, you can argue whether the SA operations should be sold, or whether the price is fair. But in financial terms, your largest risk factor just disappeared completely.

So what’s the real takeaway here?

It’s that not all money is equal. The source, structure, and strategy of your capital raise matter as much — if not more — than the amount raised.

Dilution is inevitable, but raising with the right investors, under the right terms, can be a net positive. Raising with the wrong ones can be a disaster.

You want long-term capital and aligned investors.

And if you’re considering any new investment, then the company either needs to be capable of raising capital at a reasonable price, or be cheap enough to reflect the risk that it can’t.

Because in the end, the balance sheet tells one story — but the shareholder register tells the other.

Belief is currency. Get the right investors to believe — and success often follows.