What is a Private Investment in Public Equity (PIPE)?
A private investment in a public equity (PIPE) is a privately negotiated sale of unregistered securities by a
public company to a select group of institutions or accredited investors:
• A PIPE is executed pursuant to Section 4(2) of the Securities Act of 1933, as amended, and
Regulation D.
• These regulations offer public companies a “safe harbor” exemption from the registration
requirements of the Securities Act and therefore provide companies an efficient, cost-effective and
expedient alternative to raising capital in the public markets
• Because the securities sold in a PIPE are not registered, they must be re-sold pursuant to either an
exemption, Rule 144 for example, or a registration statement covering the resale of the securities,
typically filed subsequent to the close of the PIPE.
Cygni Capital LLC – PIPE Presentation
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Sample PIPE Term Sheet
Security ………………………………… Units: Common Stock + Warrants
Size ……………………………………. $5 million to $100 + million
Closing Price ………………………….. The lesser of:
® 5 – 20 days average price prior to Closing
® The price at Closing
Discount to Closing Price ……………... 5% to 20% (can be lower for strong company)
Warrants ………………………………. ® 3-5 year terms
® Warrants amount to 5% - 30% (typical value might be 15%)
of stock issued at Closing
Warrant Strike Premium ………………. ® 110% - 150% of the Closing price
SEC Registration ……………………… ® Registration statement filed as soon as reasonable
possible, and in no event later than 30-60 days following
closing or penalties take effect
® Remains effective until stock is resold, or two years
Target Investors ……………………….. Up to several institutional investors with expertise in investing
in healthcare companies (increased number increases
logistical issues)
Road Show …………………………….. As needed (if required, usually abbreviated)
Fees ……………………………………. ® 5%-7% of gross proceeds
® Placement agent warrants equal to 5% - 10% of securities
placed by Cygni Capital LLC registered affiliate with the same
term and strike premium above
® Expenses capped at $50,000
Future Offering ………………………… Cygni Capital LLC registered affiliate would have a 1-2 year
option to lead or co-manage the company’s next financing
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Typical PIPE Investors
Traditional PIPE Strategic PIPE Technical PIPE
Hedge Funds Corporate Capital Hedge Funds
High Net Worth Individuals Hedge Funds Turn-around Funds
Insurance Companies High Net Worth Individuals
Mutual Funds Insurance Companies
Pension Funds Later-Stage Private Equity Funds
Sector-Focused Funds Mutual Funds
Turn-around Funds Pension Funds
Venture Capital Funds Sector-Focused Funds
Cross-Over Funds Turn-around Funds
Venture Capital Funds
Cross-Over Funds
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Comparison of PIPE Structures
Traditional PIPE Strategic PIPE Technical PIPE
Offer Size Usually at least $10 million Usually at least $10 million Usually at least $5 million
Typical Minimum Market $100 million $75 million $25 million
Capitalization
Typical Structure Common Stock Fixed Convertible / Common Variable Convertible /
Reset Common
Warrant Coverage Sometimes Usually Yes
Registration Within 30-6- days Within 30-60 days Within 60-120 days
Dilution Least dilutive Dilutive Most dilutive
Documentation Securities Purchase Securities Purchase Securities Purchase
Agreement, Registration Agreement, Registration Agreement, Registration
Agreement,(Warrant Agreement, (Warrant Agreement, (Warrant
Purchase Agreement) Purchase Agreement) Purchase Agreement)
Example Investors Janus, Inveson, State of Domain Associates, Ramius, Palladin, HBK
Wisconsin Warburg Pincus,
GE Capital
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Comparison of Financing Alternatives
PIPE Follow-On Convertible
Public Offering Note
Issuance Time As little as 2-3 weeks Potential SEC review can As little as 2 weeks
increase time-to-market
by up to 7 weeks
Registration Requirement File 30-90 days after Effectiveness required 144A; file 90 days
Close for Close after Close
Potential to Broaden Good Best Good
Institutional Shareholder
Base
Disclosure Requirement Minimal Full disclosure 144A
Initial Impact of the None; announcement Typically slightly negative Typically slightly
Offering on Stock Price occurs post-closing negative
Dilution Slightly higher than a FO; Some; dependent upon offer Slightly higher than a
dependent upon offer size and terms PIPE; dependent
size and terms upon offer size and
terms
Minimum Transaction Size 5 million $25 million $100 million
Cygni Capital LLC – PIPE Presentation 5
Why PIPEs are Attractive to Investors
• Opportunity to invest directly in emerging growth companies, interface intimately with senior management
• Offers attractive pricing relative to purchasing in the open market
• Provides additional upside potential via Warrants, purchase provisions, coupons/dividends
• Allows for management of market risk, equating into downside protection
• Affords structural flexibilities, allowing investors to negotiate various beneficial provisions relating to pricing,
anti-dilution, seniority, etc.
• Can be offered in the form of a senior security equating into liquidation preferences, etc.
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Why PIPEs are Attractive to Issuers
Time Control
• Time consuming underwriting process is • PIPEs are not publicly announced until after the
eliminated and with it the necessity of road issuer has secured financing, therefore
shows, formal marketing, public registrations, preserving discretion in the event of a difficult
tombstones offering process
• Diligence process is expedited by selling to a • Risk of decreased offering price or of offering
small group of sophisticated institutions withdrawal due to adverse market conditions is
• Documents are negotiated coincident with the minimized
diligence process • Significant market turnover which can occur in
• Rapid execution allows for relatively minor initial days after a public offering can be offset
demands on senior management’s time because of the holding/lock-up period that
encourages longer-term investors
• Offering Memorandum is a concise wrap-around
of public documents • PIPEs are simply less subject to the vagaries of
broader market conditions
• Capital can be raised in weeks rather than
months
Cost Flexibility
PIPEs are typically less expensive than PIPEs are double even if a sector has fallen out
traditional public offerings since lengthy drafting of favor or the size of the raise is too small for the
sessions and the legal/accounting costs public markets
associated with registration requirements of a
public offering are minimized
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