Warrants give the holder the right (but not the obligation) to purchase stock at a specified price within a specific period of time. They are often used by banks, providers of venture debt and venture capitalists to mitigate their risk and maximize their upside. There are three components of a warrant: the number of shares, the strike price and the expiry date. The terms of a warrant are negotiated based on the risk/return profile of the deal—most warrants translate to 1-2% of the company when executed, but some warrants have been converted to 20%+. 

Warrant Coverage

Warrant coverage is an agreement between a company and an investor, where the company issues a warrant to the investor allowing them to acquire shares at a predetermined price. The holder of a warrant coverage has the right, but not obligation to, buy the additional shares of stock. Warrant coverage is typically issued in situations when a higher-than-normal level of risk is present.

There are many reasons why companies offer warrant coverage, the two most significant are to attract more investors and ensure the maximum participation by committed investors.

Waterfall Equity

Waterfall equity is the primary method used to distribute the equity gained from a group or pooled investment (e.g. angel group, angel syndicate, private equity…etc.) The distribution is aligned to the pecking order in which the largest investors, or limited and general partners are granted the largest portion. As a result, they also receive a disproportionately larger share of the total profits relative to their initial investment once an exit event occurs.

Wire Transfer

Wire transfers, like ACH payments, are a form of electronic transfers from one person or entity to another. They are typically used because they are quick and cheap, as the recipient can access the funds immediately (there are no bank holds).

Working Capital

Working capital is a dollar figure calculated by subtracting a company’s current liabilities, such as accounts payable and debts, from their current assets—such as cash, and accounts receivable. It is used to pay short-term debts, and day-to-day operating expenses.