The Renewed Importance of Big-Money Backers in Microcap Investments

The Rising Importance of Supportive Shareholders in Microcap Investments in a Higher Interest Rate Environment

Old Maxims and New Realities

There’s an old maxim in microcap investing that encourages investors to jump in when there’s “little to no” institutional ownership. While there’s still merit to this saying, in today’s high-interest environment, “little” might just be more advantageous than “no.” In years past, when money flowed freely, all a startup needed was an intriguing narrative and a potential market to court investors. Achieving a few milestones, even without generating revenue, could secure additional funding at higher valuations. The allure of betting on future cash flows was palpable in an era when capital was abundant, and the returns on parked cash were negligible.

Credibility and Capital: Why Supportive Shareholders are Vital

1. Expert Analysis Enhances Credibility
   In an environment where capital is more expensive to obtain, the scrutiny each investment undergoes is higher. Institutions, equipped with expert analysts, carry out comprehensive due diligence before taking a stake in any company. This intensive analysis often gets published, serving as a credible form of marketing for the microcap firm. The validation from a respected institution under these stricter conditions can carry even more weight than it would have during the days of cheap money.
2. The Power of Association with Renowned Investors
   As the pool of available funds shrinks, the competition for capital intensifies. The endorsement from a reputable institution can make all the difference in attracting other investors and reducing the cost of capital. This is even more crucial now, as higher interest rates put additional financial strain on microcap companies seeking to finance their operations or next growth phase.
3. Stakeholder Stability and the Flywheel Effect
   In this cautious investment phase, the benefits of institutional and other deep-pocketed support become increasingly pronounced. Their long-term commitment serves as a buffer against market instability. These are not the weak hands of retail investors looking for a quick flip. Even more important, these are investors dialed in with the company progress who can and will go out and BUY MORE, much much more of the stock when good news is released.
   Too often in the microcap space have I seen the best news a company has ever put out become the event driving exit liquidity for retail investors only to see the share price flounder despite the company progressing and being de-risked.
4. The Drawdown Defense
   Protecting against downturns is paramount today. Observing seasoned investors maintain or grow their stakes can deter others from selling in a panic, thus minimizing the risk of sharp drawdowns.
   Further, with their in depth analysis and understanding of the story it is always good to have deep pockets intimately familiar with business progress who both can and will step in and buy when shares are undervalued.

Spotlight: Companies Set to Shine

1. Alaska Energy Metals Corporation (AEMC, TSXV)
   Following its recent surge, AEMC demonstrates the benefits of robust backing, illustrating how significant supporters can amplify a company’s potential.
2. Borealis Mining Company: A Glimpse into a Goldmine of Opportunity
   While still not public, Borealis is already garnering attention, thanks in part to a leadership team that boasts some of the mining industry’s most prominent figures.

Kelly Malcolm, CEO: Helmed the 2022 Exploration Company of the Year.
Tony Makuch, Chairman: Adept at building and selling enterprises for billions.
Greg Gibson, Director: A seasoned professional with a history of lucrative deals.
Bob Buchan, Director: The mastermind behind the world’s 7th largest gold producer.

A Landscape of Evolving Opportunities

In the maze of high interest rates, the roles of supportive shareholders and stalwart leadership stand out in relief. Both AEMC and the upcoming Borealis exemplify these values in action. For discerning investors, these firms blend potential with stability — a combination worth investigating in today’s dynamic investment scene.

Bill McClain – Editor of The Momentum Letter
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