Definition of Warrant Coverage

"Warrant coverage" refers to a contract between a company and an investor where the company issues warrants equal to some percentage of the investor's investment in the company. The warrants give the investor the right to acquire additional securities of the company, thus potentially enhancing the investor's returns if the company does well. By way of example, a venture capitalist could agree to invest $10 million into a company, and receive 30% warrant coverage. That would mean that the venture capitalist would receive a warrant that would give it the right to invest an additional $3 million into the company, on the same terms as the original $10 million, for some period of time (typically ranging from 1-5 years). The terms of the warrant coverage are negotiated with the company and reflected in a "Warrant" or "warrant agreement."