- May 6, 2020
- Knowledge Repository
- Comments : 0
Warrants/convertible warrants
Explaination: These are types of instruments an Investor may use to invest in the Startup. A warrant is a document that provides a right to the Investor to subscribe to the shares of the Startup at a valuation previously agreed between the Investor and the Startup.
How it applies to Startup/Investor and its impact: Recent trends shows various start-ups issuing equity in lieu of services. In such an arrangement, warrants are issued alongwith line of Credit to the start-ups. As and when the line of credit is exhausted, service provider uses their warrants to exercise their rights to subscribe to the Equity Shares.
There are service providers who do not fund through cash so they generally go for Warrants issue wherein they take services from those service provider for their start-ups and in lieu of that Equity is issued to them.