Pre-IPO Convertibles

Pre-IPO convertibles are often issued by companies that are considering an IPO in the near-to-medium term and are viewed as the last financing round before an IPO. Historically, the most common variation of a pre-IPO convertible security was the structure that automatically converts into equity at the time of the IPO, often at a discount to the IPO price. However, in recent years, a new variation of pre-IPO convertible has gained traction with issuers and investors – the security becomes a post-IPO convertible at the time of the IPO, with the conversion price set at a premium to the IPO price.

With the recent slowdown in the IPO market, there has been increased dialog around pre-IPO convertibles, particularly around the new structure. While pre-IPO convertibles allow you to raise capital at a premium to the current equity valuation, avoid a down round, and diversify your investor base, it also comes with structural complexity, including features that have a higher cost and can limit flexibility in the future.

ICR Capital’s Convertible and Equity Derivatives Advisory team can help you navigate the complexities of a pre-IPO convertible. We work with our broader Capital Markets Advisory team, a group of highly experienced professionals that has run ECM desks at bulge bracket banks and collectively advised on 1,000+ transactions, including IPOs, follow-ons, block trades, and SPAC mergers. With our differentiated approach, we are much more strategic than any other advisor when thinking through the structure and terms of your pre-IPO convertible and potential impacts to your IPO.