What does "warrants for the equity kicker" mean?


3

I was reading an article in a VC's blog and I found this explanation about venture debt:

"The terms are usually three years, interest only, balloon payment, with warrants for the equity kicker."

Can you explain the 'warrants for the equity kicker' part?

Funding Venture Capital Debt

asked Jul 29 '11 at 04:08
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Sd Reyes
156 points
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1 Answer


4

Warrants are the right to buy stock at a fixed price until it expires.

An equity kicker is a special bonus part of a loan that gives someone who loans money to a company (as debt) an extra bonus right to purchase shares in the company.

So the sentence, in plain English, would be:

  • The terms of a venture debt loan are as follows:

    • The loan is for three years.
    • It is an interest only loan, which means that each month, only the interest on the loan is due... you do not pay back any part of the principle.
    • It has a balloon payment, which means that at the end of the three years, the entire principle must be paid back all at once.
    • To make the loan a better deal for the lender, the lender will have the right to purchase some shares of stock in the company at a fixed, pre-agreed upon price.

      • This part is done by issuing warrants, the right to buy a certain amount of stock in the company at a certain price within a certain price range.

answered Jul 29 '11 at 04:55
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Joel Spolsky
13,482 points
  • Exactly what I was looking for. thank you, Joel – Sd Reyes 9 years ago

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Funding Venture Capital Debt