Pre-funded warrant
A pre-funded warrant is a warrant sold for almost the full share price up front, leaving a nominal exercise price such as $0.0001, so a buyer can stay under ownership limits until it exercises.
Last verifiedHow it works
In an offering, a buyer who would end up owning more than a set percentage of the company (commonly 4.99% or 9.99%) can buy pre-funded warrants instead of some of the common shares. The buyer pays the offering price minus a tiny exercise price at closing, for example $1.9999 per warrant in a $2.00 offering with a $0.0001 exercise price. Exercising later costs almost nothing.
Pre-funded warrants usually have no expiry date and include an ownership blocker that prevents exercise if the holder would exceed its limit.
Why it matters
Economically, a pre-funded warrant is nearly a share that has already been paid for. It does not appear in shares outstanding until exercised, so the basic share count understates how many shares a financing created. Holders typically exercise in stages as they sell common stock and drop back under their limit.
Worked example
Hypothetical: Company X sells $10,000,000 in a registered direct offering at $2.00: 2,000,000 common shares and 3,000,000 pre-funded warrants at $1.9999.
| Item | Count |
|---|---|
| Shares outstanding before | 20,000,000 |
| Common shares issued | 2,000,000 |
| Shares outstanding after (as reported) | 22,000,000 |
| Pre-funded warrants outstanding | 3,000,000 |
| Shares after all pre-funded warrants are exercised | 25,000,000 |
All figures are hypothetical.
The reported count rose 10%, but the deal adds 25% once the warrants are exercised.
How to spot it
The 424B5 or S-1 cover page lists "pre-funded warrants to purchase up to X shares" alongside the common stock. Many companies include pre-funded warrants in the weighted average share count for earnings per share, and the equity footnote of the 10-Q or 10-K usually reports them separately from ordinary warrants. See Reading a 424B5.
See it on DilutionScan
Companies DilutionScan covers, with the instruments read from their SEC filings. Open one to see each instrument and the filing it came from.
- GNSGenius Group Limited8 warrant series, 1 convertible, 1 ATM program, 3 shelf registrations and 2 completed offerings on file
- SMXSMX (Security Matters) Public Limited Company Ordinary Shares10 warrant series, 8 convertibles, 2 equity lines, 4 shelf registrations, 4 S-1 registrations and 2 completed offerings on file
- MLGOMicroAlgo, Inc. Ordinary Shares2 warrant series, 5 convertibles and 2 shelf registrations on file
- HOLOMicroCloud Hologram Inc. Ordinary Shares2 warrant series, 1 convertible, 3 shelf registrations and 2 completed offerings on file
Guides that use this term
- How to Trade Penny Stocks Without Getting DilutedA dilution-first guide to penny stocks. How new shares reach the tape, which SEC filings announce them, worked examples, and a 20-minute filing check.
- Why Penny Stocks Drop After Good News: The Offering PlaybookWhy a small-cap stock can fall on a strong press release. Registered direct and ATM mechanics, the offering math with a worked example, and the filings to read.
- How to Check a Penny Stock for Dilution in 20 MinutesA six-step filing checklist for dilution risk in a small-cap stock. What to open on EDGAR, which phrases to search for, and the four numbers to write down.
- Warrant Overhang: How to Count Shares Not Issued YetWhat warrant overhang is, how to total it from the warrant table in a 10-Q, and how cash, cashless and pre-funded exercises change the eventual share count.
- Registered Direct vs PIPE vs Underwritten OfferingRegistered direct vs PIPE vs underwritten offering: how each sells a block of shares at a fixed price, how each is registered and disclosed, and what fees cost.
- How to Read a 424B5 Prospectus SupplementHow to read a 424B5 prospectus supplement in five minutes: the cover, offering summary, dilution table, plan of distribution and baby shelf paragraph, in order.
Related terms
Check any ticker for dilution
DilutionScan reads each covered company's SEC filings and lists its warrants, convertibles, ATM programs, shelves and S-1s on one page, with a dilution rating and cash runway.
Definition from the Signal8 Academy glossary. Educational content only. DilutionScan and Signal8 are not broker-dealers or investment advisers, and nothing here is a recommendation to buy or sell any security.