Issuing Warrants to Investors
When raising capital for a business venture, warrants are a common form of equity that is given to investors. A warrant is like an option ? it gives the holder the right to buy a security at a fixed or formulaic price, which is known as the "exercise" or "strike" price. Warrants are often confused with options. Options, as used in the venture capital space, are typically long term (up to 10 years). They are also typically issued to employees versus investors. Conversely, warrants act like short-term options and, unlike employee options, can be traded as an independent security. In general, neither the issuance of warrants nor their exercise (at least by non-employees) is a taxable event. In fact, in 1984, Congress reversed the earlier position of the IRS that the expiration of a warrant is a taxable event for the issuer. However, whenever a debt security with warrants attached is issued as a package, original issue discount problems are invited. One type of warrant that once popular as a financing mechanism for emerging ventures is contingent warrants. These warrants become exercisable if and when the holder does something for the issuer, for example buys a certain level of product. Contingent warrants are no longer used often since the SEC ruled in favor of current and periodic recognition of expense to the issuer. Like an option, a warrant is considered a "common-stock equivalent" for accounting purposes. And, if the warrant has been "in the money" (i.e., the exercise price is below the market price) for three consecutive months, it is deemed to impact earnings per share under the so-called treasury-stock method. That is, the warrants are considered exercised, new stock is issued at the exercise price, and the proceeds to the issuer are used to buy in stock at the market price. Warrants are a common financing mechanism and companies seeking venture capital should consider and become knowledgeable about this type of equity device. Since its inception, GT Business Plans has developed over 200 business plans. Growthink clients have collectively raised over $750 million in financing, launched numerous new product and service lines and gained competitive advantage and market share. Growthink has become the firm of choice for venture capital firms, angel investors, corporations and entrepreneurs in the know. For more information please visit http://www.growthink.com or download our free Business Plan Guide.
Related News
|
 |
|
|
RELATED ARTICLES
The Myth of the Earnings Yield
Abstract
Is Starting A Business For Me? What To Consider Before Starting A Business
Do you have the right temperament?
Basic Options Terms
Options are good investing and speculative instruments. But options terminology may confuse even experienced investors. In this article we will take up some basic options terms.
Missleading Fund Names Wreak Havoc On Investor Returns!
Mutual fund managers use fake fund names to part you from your money such that you cannot judge what a fund does by its name. Many funds have names that are outright misleading or even deceptive. In the late 1990's, for instance, during the technology stock bubble, some portfolio managers took advantage of public's desire to chase the latest fad by slapping "internet" in front of their fund names.
Dumb Money
Many people have, at one time or another, taken some of their hard-earned funds, and decided to put them in the stock market. These well-meaning individuals either acted on a tip they saw on CNBC, or actually believed one of those crazy faxes/emails that said XBXB @ $0.17/share was the next Microsoft. These people thought they were being smart, but they probably just ended up lining the pockets of brokers and mutual funds when they lost money on their 'investment'. I know, because I've done it, too.
Boost Your Income With Financial Spread Betting
About 6 years ago I started to notice that certain friends of
mine had quit their jobs but continued to live very luxurious
lifestyles - seemingly without doing very much. I thought
they must just be using up their savings until I discovered
they were all making a fantastic living by spending just a
few hours a week doing something I had never heard of before
- "financial spread betting".
Ask The SEC
Who is the SEC and why should I ask them anything? The Securities and Exchange Commission in Washington, DC is the government bureau that regulates the securities industry. They make the regulations that all stock exchange listed companies, brokerage houses and mutual funds must follow.
Makin The Sauce
Let's face it, you're on a roll. After getting down to your attorney's office to sign the new Living Trust and then diligently tracking down your assets to fund the trust, you should be congratulated. You're one of the responsible ones - 70% of the people who die each year in the United States haven't even bothered to get a will. Frankly, you're an inspiration to us all. But to seal the nomination for the financial Oscars, a little work on your investments could go a long way.
Approaches to Investing
Here is a small summary of the three major approaches to investing:
The Past Does Not Equal The Future: Mutual Fund Returns!
A way that investors get ripped off and in a sense rip themselves off is based on the culture of performance in the mutual fund industry. If you stop and think about it there is absolutely no reason that the past has to equal the future. If you have not been particularly successful as a stock investor in the past, for instance, there is no reason that you won't be unsuccessful in the future. One reason I hope that you are reading this article is that you want to improve as an investor.
Planning Starts with the Basics
When developing a plan for your finances, the toughest question often is: "Where do I begin?" Before investing in stocks and bonds or buying life insurance, before implementing any change or making any decisions, you first need to analyze and understand your entire financial picture. Two documents allow you to do just that. A Balance Sheet and a Cash Flow Statement enable you to take an in-depth look at your current financial situation and make better decisions about the future. With a little work, you can develop these two tools and be on your way to a solid plan for your finances.
Landlording 101, Tricks of The Trade
Looking Inside Your Tenant's Mind
Basic Mind-Reading Report 101 for Landlords
Investing Online Has Its Rewards: Find Out How To Take Advantage Of Them
Computerized investing. Online investing. Have you taken the next step yet? These days among savvy investors, online investment resources are synonymous with opportunity.
The Demise of Buy & Hold
Based on consistent results I think Buy & Hold should be renamed Buy, Hold & Bye-Bye. It sounded great for a while, especially for the huge majority of investors who don't have the time or interest in really doing due diligence on investments.
Retire Dollar Smart
Jim Miller is a registered investment advisor. This means that he is not beholden to a particular brokerage or financial institution. As such, he does not charge monthly fees for "money-managing"; instead, through a consultation fee he is free to give whatever advice will best benefit his clients; he doesn't have to serve them whatever "flavor of the month" the brokerage or financial institution happens to like at that point in time. His investment advice in his book, "Retire Dollar Smart," is clear and filled with common sense.
Everybody Wants to Know How to Invest
Those unfamiliar with the process of making and managing investments often have more than a few trepidations about investing in general. They figure that, since they do not know how to invest, they will never learn. Of course the horror stories of investors who lost their life savings on some bad deal don't help people to feel any less secure when figuring out how to invest.
Trading Commodity Futures Using Support and Resistance - Paper Trading
Setting Up a Paper Trading Account
The Conflict of Interest Game
Disgruntled investors are going after Wall Street once again, this time accusing one of investment bank Morgan-Stanley's high-tech mutual funds of making biased stock picks.
Stock Market Money Management Skills
Let's start by saying: You can't be afraid to take a loss. The investors that are the most successful in the stock market are the people who are willing to lose money.
Credit Scores = ROI Profits for Real Estate Investors
Strong credit saves real estate investors money on mortgage finance costs. A good credit score, along with the other credit and mortgage qualifications, means that investors can pay lower fees for financing, such as points and interest charges. Also, good credit scores help you avoid garbage fees associated with nonprime loans.
|
