You may come across the term warrants in a terms sheet. Warrants are a type of security that gives investors the option to buy more stock over a designated time frame, at a specific price.

Three parameters define the details of a typical warrant clause: the term, the coverage, and the price.

The term sets the window of time the investor has the option to exercise the warrant.

The coverage sets the number of shares the investor is entitled to buy.

The price sets the price at which an investor can purchase the shares. This is typically the same as the current price.

Warrants are used to ‘sweeten’ the deal by enabling an investor to buy more shares later.

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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.