Investors are always concerned about balancing risk with potential rewards when making angel investments. Recently P2Bi was able to close their deal quickly by adding warrants as a “sweetener” to the deal for early first round equity investors, resulting in a quick close to their deal minimum and the early round warrant deal closes on August 8th.
Early investors who committed to the first round of P2Bi’s Series A funding received warrants for up to 50% of their investment amount with half expiring in December 2013 and the other half expiring in June 2014. The warrants allow the investors to purchase additional shares at the original offering price of $1.50.
So, what does this look like to an individual investor?
Someone investing $50,000 would have the option to purchase up to $25,000 worth of additional shares at the original offering price of $1.50 up to December 2013, or if that was not exercised, they could purchase up to $12,500 worth of shares by June 2014.
Why is this beneficial?
In every deal there is an execution risk. The deal looks great, but investors wonder how the company will do once the investment has been made. The warrants allow investors to observe how well the company performs against its benchmarks and to decide whether they want to make an additional investment at the same rate once the company proves itself and the risks are reduced. This is always attractive to an investor since later stage funding rounds where risk is substantially reduced typically will have a price that is as much as double or triple the original investment cost per share.
For more information about how this deal was structured you can contact Bruce Morgan at P2Bi (firstname.lastname@example.org)