How To Calculate Warrant Coverage

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

A warrant is the right to buy a company's stock at a specific price or range over a certain time period.

The warrant acts like an option, but it issues stock, which dilutes the cap table.

Founders raising funding offer warrants to incentivize investors to fund the company.

Warrant coverage is the number of warrants an investor receives based on the size of their investment.

It's typically stated as a percentage such as 5% or 10%.

Here's how to calculate warrant coverage:

Take the number of shares at a specific price per share as the initial investment.

Take the number of shares to be provided as warrants.

Divide the number of warrants by the number of shares of the initial investment to reach a warrant coverage amount.

Here's an example.

The founder offers 50,000 additional shares to those who invest in 500,000 shares at $3 per share.

The warrant coverage is 50,000 divided by 500,000 at $3 per share, generating a 10% warrant coverage.

Consider these calculations in offering warrants in your fundraiser.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

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