Warrant
A right to buy shares at a fixed price in the future, often attached to debt or partnership deals.
Definition
A warrant is a financial instrument that gives the holder the right to purchase shares at a specific price (the warrant price) before an expiration date. Warrants are commonly attached to venture debt, bridge financing, or strategic partnership deals as a sweetener. They function similarly to stock options but are issued to investors and lenders rather than employees. When exercised, warrants create new shares and dilute existing holders.
Why it matters
Warrants issued alongside debt or partnerships add to the fully diluted share count and create additional dilution. When evaluating your ownership, make sure outstanding warrants are included in the denominator.
Example
A venture lender provides a $5M loan and receives warrants to purchase 100,000 shares at $5/share within 10 years. If the company IPOs at $40/share, the lender exercises the warrants, paying $500K for shares worth $4M, and 100K new shares are added to the cap table.