Convertible Equity Warrants:

A convertible equity warrant is a financial product that entitles the owner to the option, but not the requirement, of buying a company’s equity shares (common stock) at a specified price (strike price) over a set period. It’s basically a hybrid instrument, taking on aspects of both warrants and convertible securities.
Here’s a more in-depth analysis:
Key Elements:
Warrant:
A warrant entitles the holder to purchase a firm’s stock at an agreed price (strike price) within an agreed time.
Convertible:
The warrant can be exchanged for equity shares of the firm upon the holder’s choice, usually at a stipulated ratio.
Equity Shares:
These are the typical ownership shares in a firm, a fraction of the firm’s ownership.
How it works:

  1. Issuance:
    Businesses offer convertible warrants, usually as a component of a larger capital-raising round, in an effort to raise funds.
  2. Conversion:
    The warrant owner has the option to exercise the warrant to acquire shares at any time within the given time period, or allow the warrant to lapse if it is not beneficial.
  3. Pricing:
    Warrants are usually valued over the existing market price of the stock underlying the warrant.
  4. Possible Benefits:
    For the Company: Raises capital without the immediate dilution of current shareholders.
    For the Warrant Holder: Opportunity to benefit from appreciation of share price if the stock price increases beyond the strike price, with minimal downside risk (as they have the option not to convert).
    For Both: Facilitates long-term investment with the possibility of increased returns compared to conventional debt funding.
    In effect, convertible equity warrants provide an avenue for firms to access capital while also providing an opportunity for investors to share in the growth potential of the firm through equity interests.

If issued to promoters, one month from allotment date is the minimum period of lock-in. In the case of non-promoters, the lock-in period is six months in general. Share warrants are to be converted into equity shares within 18 months from the allotment date.