Our Policy on Venture Debt Warrants

We Don’t Take Them — Here’s Why

Venture capital warrants incentivize investors by ensuring them the right to purchase stock of the company they’re investing in at a fixed price at any time before the warrant’s expiration. Debt warrants are expressed as a percentage of coverage, usually allowing the investor to purchase 5 to 10 percent of the value of their investment.

While loan warrants are sometimes considered a low-risk way to entice potential investors, they also have their downsides. One of the main reasons we don’t take warrants is to allow the SaaS companies we partner with to retain complete ownership and total control of their business decisions while receiving our venture debt funding.

Don’t Risk Diluting Your Ownership with Debt Warrants

Since investors with warrants reserve the right to purchase stock at any point before expiration, you never know when they might decide to exercise the warrant and take a percentage of ownership in your company. This may cancel out one of the main benefits of SaaS venture debt financing — that it’s non-dilutive and doesn’t involve an exchange of equity.

Another negative is that investors will be able to buy stock at the agreed-upon fixed price, even if your share value has increased significantly. This allows them to purchase more of your stock for a lower price than anyone else down the line.

Venture capital warrants may also complicate your exit plans. If you leave and your stock begins to lose value, the investor will exercise the warrant because it guarantees them a certain price for it, regardless of where the stock stands during the exit.

Since a warrant requires your company to issue new stock if exercised, an exercised warrant will also dilute existing stock in your company. That means existing shares would lower in value while the value of the investor’s shares would be protected by the warrant’s terms.