Seasoned Technologist and Serial Entrepreneur | AI Strategist | Seed Investor | CTO | Championing Growth in AI-Enabled Startups
We generally see warrants used when investors can't agree with founders on a valuation. As I've shared before, valuation is really just a proxy for the amount of dilution a company is willing to absorb during a round of fundraising. So, while warrants let you keep the price, it doesn't change the dilution. Example: Raise $1M on a $4M pre, with 20% warrant coverage (warrant coverage basically means investors get up to $200k in extra equity). In this case, you have explicitly sold 20% of the company, but you must also reserve another 4% of equity for the warrants. In effect, selling 24% of equity, which equates to a $3.16M pre-money valuation. But, because warrants have a future redemption date, you don't get the extra $200k, even though you have set aside the equity. before offering warrant coverage, think very carefully about the implications to valuation for what you're offering. https://buff.ly/3VFPqlm
