Coverage is neither ownership nor warrant fair value.
A coverage percentage specifies an amount linked to a financing. Under this convention, dividing that amount by the exercise price gives the number of warrants. Those shares dilute existing holders when added to a fully diluted capitalization, while a cash exercise brings the strike amount into the company.
Intrinsic value uses an explicitly entered common-share value and floors the spread at zero. It ignores time value and does not forecast exercise. A coverage amount can differ substantially from the warrant’s fair value; neither intrinsic value nor potential dilution should be added to cash debt cost as though it were a cash fee.
The formula, made clear.
- Cash exercise
- All modeled warrants are exercised for newly issued common shares, with no cashless or net settlement.
- Ownership reduction
- Relative reduction of every existing holder’s percentage; distinct from the percentage-point change in a particular holder’s stake.
- Intrinsic value
- Positive exercise spread only under the assumed common value; excludes time value, taxes and transfer restrictions.
Put the numbers in context.
5% coverage on $1,000,000.00 at a $2.00 strike produces 25,000 warrants. Added to 10 million existing fully diluted shares, that is about 0.249% dilution. At $10.00 common value, intrinsic value is $200,000.00 and full cash exercise contributes $50,000.00 to the company.
| Input | Example value |
|---|---|
| Financing principal used for coverage | $1,000,000.00 |
| Warrant coverage | 5% |
| Warrant exercise price per share | $2.00 |
| Existing fully diluted shares, excluding these warrants | 10,000,000 shares |
| Your existing common shares | 6,000,000 shares |
| Assumed common-share value on exercise | $10.00 |
| Existing-holder dilution on full exercise | 0.25% |
What this calculation assumes
One warrant grant on one stated financing-principal coverage basis, one strike and full cash exercise into common. Existing fully diluted shares exclude this grant and include all other common equivalents. No cashless exercise, treasury-stock method, vesting, anti-dilution adjustments, expiry, tax, market price sourcing or option-pricing fair value. The entered common value is a scenario held fixed; this tool does not revalue the company when exercise cash arrives. Full-exercise dilution is shown even for out-of-the-money warrants and does not predict exercise.
Methodology references
What to consider next.
Use venture debt for repayment timing and liquidity, and this page to review the distinct equity consequence. Confirm the coverage base, security class and settlement method before interpreting the result.
How we approach financial models →