The great microcap divide: 4C data reveals

Equitable Investors just completed an analysis of the September 2025 Appendix 4C quarterly cash flow reports for 357 ASX-listed microcap companies.

The findings paint a picture of a market defined by a stark divide.

On one hand, the "capital window" was wide open, with capital raising up 118% year-on-year. On the other, ~50-60% of listed tech and healthcare companies were holding less than four quarters of cash at their current burn rate.

Here are the four key findings from our analysis.

1. The Cash Runway is Shrinking

The headline number is all about the cash runway. We found that ~50-60% of the 357 companies we analysed (or between 160 and 202 companies, depending on the metric used) have less than four quarters of cash remaining at their current burn rate. This is roughly a 10% increase from a similar study we did based on the June quarter of 2024 (15 months earlier).

Unsurprisingly, the "hotspots" for this cash crunch are the Healthcare and Technology sectors, which together make up 75% of the 4C reporters by market capitalisation. While many of these companies (especially biotechs) are structured to return to the market for funding, a short runway limits their negotiating power and operational flexibility.

Around 20% of 4C reporters achieved positive net operating cash flow in the September quarter. 

We counted 38 companies that achieved positive operating cash flow after being negative 12 months earlier. On the flip-side, 30 companies reverted to negative operating cash flow from positive results 12 months earlier.

2. A "Great Divide" in Growth

An investment thesis isn't always just about top-line growth - but the cash receipts data demonstrates bottom-up research is absolutely critical in microcaps. While the average year-on-year receipts growth for the Tech sector was 83%, this number is massively skewed by a few hyper-growth winners.

A more telling figure is the median, which was -3.5%.

We saw a similar story across the entire 4C cohort, where the median year-on-year change in receipts was a decline of 2.4%. More companies reported declines in their September quarter receipts, relative to a year earlier, than gains: 119 to 130.

3. Hidden Leverage is a Key Risk

What adds to the risk associated with a high cash burn? Relying on debt funding.

Our analysis showed that 28% of all 4C reporters were in a net debt position. Of those companies with net debt, 21% also generated negative operating cash flow in the last quarter. This combination of burning cash while also servicing debt only adds to the pressure (and potential opportunity for an investor with capital available) to raise additional equity.

4. The Capital Window is Open (But Only for Some)

Here is the key contradiction: despite the number of companies currently running low on cash, the market has been receptive to raisings.

The S&P/ASX Emerging Companies Index advanced 29% in the September quarter as the value of trade in stocks in this index jumped 51% from the June quarter.

This 4C cohort raised a net $791 million in new capital (debt and equity, net of repayments etc) in the quarter—a 118% increase on the same period last year by a similar cohort.

The market is being highly selective. We would expect that companies with a clear path to profitability and cash generation should find funding support but others will have to rely on sentiment and "animal spirits" to get funded.

At the same time, companies are also reluctant to raise capital when they feel they are materially undervalued. The resurgence of small and micro cap share prices in this calendar year has tempered that undervaluation but with takeover offers for small industrials coming in at an average 89% premium (71% median), based on Pure Asset Management's analysis of deals since 2023, there has been clear evidence of a large spread in bid price between the marginal buyer on the ASX and corporate and financial acquirers.

Illustrating that last point, at Equitable Investors, we recently saw one of our existing investments execute an equity capital raise at a premium to market (something rarely achieved on the ASX), having worked extremely hard over the past few years to avoid being forced to raise at a discount to a market price it likely considered sub-par.

On the flip-side, we have also seen companies generating positive earnings and growth choosing to "bite the bullet" and raise capital at a discount to fund their working capital and speed up their growth initiatives.