Warrant
A right to purchase a company's stock at a fixed price in the future, often issued alongside venture debt.
A warrant gives its holder the right, but not the obligation, to buy a specific number of shares at a predetermined price within a set time window. Warrants are most commonly issued to venture debt lenders as 'equity kicker' compensation, giving the lender modest upside if the company grows, in exchange for offering debt at a lower interest rate than they otherwise would.
Unlike employee stock options, warrants are generally issued to outside parties (lenders, strategic partners, sometimes banks) rather than to employees, and they aren't subject to the same vesting or 409A pricing rules — the strike price is negotiated directly as part of the underlying deal.
A venture debt lender provides a $5M loan and receives a warrant to purchase $150,000 worth of preferred stock at the most recent round's price, exercisable for up to 10 years — a modest equity kicker worth roughly 3% of the loan amount.
Warrant coverage (the percentage of the loan amount the warrant is worth) is a real negotiable term in venture debt deals — typically 5-20% of the facility size — so treat it as part of the effective cost of the loan, not a footnote.
Do warrants dilute existing shareholders?
Yes, though usually modestly — when exercised, warrants create new shares just like options do, adding to the fully diluted share count.
Related terms
Run the numbers yourself: dilution, SAFE conversion, and fund-returner calculators.