The form of
equity financing in which a
private investment company purchases a certain amount of
stock in a
publicly-traded company at a discount from its
market value. Publicly-traded companies commit to PIPE in order to raise equity without going through
expense and regulatory issues involved in making a
secondary offering. This form of financing is popular especially with small and medium-sized publicly-traded companies, as they often lack the resources to raise
capital using other methods.
There are two types of PIPE. A traditional PIPE allows the private investment company to simply
buy stock in the publicly-traded company. This is a direct form of equity financing. A structured PIPE, however, involves the publicly-traded company
issuing a certain amount of
convertible debt. This carries less
risk for the private investment company and does not dilute the publicly-traded company's
shares outstanding, at least not immediately. See also:
Venture capital.