Warrant Coverage
In the context of startup finance, warrant coverage is the practice of issuing warrants as compensation to guarantors, bridge loan lenders, and other financial risk-takers. As a percentage of the related debt, the number of shares that can be obtained upon the exercise of the warrant is calculated.
What it Means:
Warrant Coverage turns into a tactical tool for Indian founders negotiating the financial scene to reward lenders who assume the risk of offering financial support. This fosters a collaborative approach to growth by aligning interests.
How to Calculate:
Finding the percentage of debt that warrants represent is a necessary step in calculating warrant coverage. The lender would receive warrants for shares equal to 10% of the debt, for example, if the agreed-upon coverage was 10% and the debt was INR 1,00,000.
Why Measure:
For Indian founders, measuring warrant coverage is essential because it affects how appealing debt-based financing is. It enables financial agreements to be tailored, strengthening the startup's financial position and attracting lenders.
Examples:
Imagine a startup in India getting a bridge loan of INR 5,000,000. A 15% Warrant Coverage would entitle the lender to warrants equal to 15% of the loan amount. If the startup thrives, the lender can later exercise these warrants, participating in the company's success.
Within the Indian startup scene, Warrant Coverage functions as a vital link between investors and expanding businesses, cultivating a mutually beneficial partnership that is likely to succeed.