Pre-funded warrant
Also called: pre-funded warrants, prefunded warrant, PFW
A warrant sold for almost the full share price up front, leaving a nominal exercise price such as $0.0001, used so a buyer can stay under ownership limits until it exercises.
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How 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.
Related terms
Guides that use this term
Dilution 101 · 6 min read
Warrant Overhang: Counting the Shares That Do Not Exist Yet
What 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 share count.
Dilution 101 · 6 min read
Registered Direct vs PIPE vs Underwritten Offering, Compared
The three common ways small companies sell a block of shares at a fixed price, how each is registered and disclosed, and what the fees do to net proceeds.
Dilution 101 · 6 min read
How to Read a 424B5 Prospectus Supplement in Five Minutes
A section-by-section route through a 424B5, the filing that announces a shelf takedown, with the dilution table math worked out and a checklist.
Toxic financing · 6 min read
Ownership Blockers: Why 4.99% and 9.99% Caps Do Not Limit Total Dilution
How beneficial ownership blockers work, why they cap a holder's stake at any moment but not the total shares issued, and a worked convert-and-sell cycle.
Toxic financing · 6 min read
Concurrent Private Placement Warrants: The Second Half of a Registered Direct
Why registered direct offerings often come with unregistered warrants in a concurrent private placement, and how to count the shares they add later.
Ownership & insiders · 6 min read
Schedule 13D vs 13G: Activist and Passive 5% Stakes
The difference between Schedule 13D and 13G, who may use each, the 5% trigger, and the shorter filing deadlines in force since 2024.