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I'm confused. I remember reading a file for secondary offering from a company and it said "We will not receive any proceeds from the sale of these shares other than proceeds, if any, from the exercise of warrants to purchase shares of our common stock"

So in order for companies to actually make money issuing warrants, the warrants have to be exercised??

I was always under the impression that companies make money right away when they sell warrants, and whether the warrants get exercised or not is the buyer's problem.

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Well, they don't "make" money in the sense of income, but they receive money in exchange for shares of stock (more of the company is owned by the public). The Warrant entitles the holder to purchase stock directly from the company at a fixed price. It is very much like an open-market call option, but instead of the option holder buying stock from a third party (which does not affect the company at all), the holder buys it directly from the company, increasing the number of shares outstanding, and the proceeds go directly to the company.

If the holders do not exercise the warrants, the company does not receive any cash, but they also don't issue any new shares.

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  • Thank you for the answer.. but now im even more confused. this is how i imagine warrants to work: 1. company sells warrants at a certain price per warrant(?) and instantly raises money for itself 2. if the warrants hit the strike price before expiring, the holder sells the warrant in the secondary market or converts into stock and sell, and all the proceeds go to the holder. <-- am i wrong? – sculpter Nov 6 '17 at 20:24
  • Point 2 is wrong - if the holder exercises the warrant, they buy stock at the strike price directly from the company. They can then sell the stock on the secondary market for a profit. – D Stanley Nov 6 '17 at 20:32
  • thank you again! so just to confirm.... 1. when company sells warrants, they make money from the sale of warrants, and 2. if the warrants get exercised, they also make money for the conversion (newly issued stock*strike price)? – sculpter Nov 6 '17 at 20:36
  • They raise money in exchange for shares ("make" implies income which is technically not true), but yes they receive cash from both transactions. – D Stanley Nov 6 '17 at 20:44

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