Private Investment in Public Equity (PIPE)

What is a PIPE?

A Private Investment in Public Equity (PIPE) is a financing arrangement in which accredited or institutional investors buy shares directly from a publicly traded company at a price below the prevailing market value. PIPEs let public companies raise capital quickly by selling securities in a private placement rather than through a full secondary offering.

Key takeaways

• PIPEs provide fast access to capital with fewer regulatory steps than public offerings.
• Investors typically receive shares at a discount to compensate for limited liquidity and other risks.
• PIPEs can dilute existing shareholders and sometimes require prior shareholder approval (commonly when more than 20% of outstanding shares are issued at a discount).
• Structures vary: traditional PIPEs sell common or preferred stock; structured PIPEs use convertible debt or preferred securities with protective features.

How PIPE transactions work

• Issuer arranges a private placement with one or more accredited or institutional investors; shares are not offered on the public market.
• Funds are usually delivered within a few weeks (commonly 2–3 weeks), faster than a full public offering.
• The issuer typically files a resale registration statement with the SEC so investors can resell their shares publicly; registration often becomes effective within about a month of filing.
• Until the registration is effective, investors may be restricted from immediately selling the securities.

Types of PIPEs

• Traditional PIPE: Sale of common stock or preferred stock that may be convertible into common shares at a set price or ratio. Priced near market value in many cases.
• Structured PIPE: Sale of preferred stock or debt securities that are convertible into common stock. May include features such as reset clauses that protect new investors from downside risk but can increase dilution for existing shareholders.

Key investor considerations

• Discount: Investors usually buy at a discount to the market price; the discount compensates for liquidity risk and other uncertainties (average PIPE discount was roughly 5% in 2023).
• Liquidity and resale: Investors often cannot resell immediately; resale depends on SEC registration effectiveness or other transfer restrictions.
• Dilution: Issuing new shares reduces existing shareholders’ percentage ownership and can pressure the market price.
• Shareholder approval: Issuers often need shareholder approval if discounted issuances exceed a material threshold (commonly ~20% of outstanding shares).
• Contract terms: Conversion rates, reset provisions, anti-dilution protections, and other clauses materially affect outcomes for both investors and current shareholders.

Pros and cons

Pros (for issuers and/or investors)
* Fast capital raise compared with public offerings
* Lower transactional costs and reduced paperwork
* Access to long-term strategic investors
* Discounted pricing for investors

Cons (primarily for existing shareholders)
* Dilution of ownership and potential downward pressure on share price
* Issuer receives less capital per share due to discount
* Restricted to accredited/institutional buyers, limiting broad investor base
* Potential need for shareholder approval and related delays

Real-world example

In August 2023, Archer Aviation completed a financing round that included a $215 million PIPE. Strategic and institutional investors—such as United Airlines, ARK Invest, Stellantis, and Boeing—participated. The capital was intended for working capital and corporate expenses tied to aircraft development, while investors increased stakes and strengthened strategic relationships with the company.

PIPE vs. IPO vs. private placement

• IPO: Company’s first sale of securities to the public market—full public registration and broad distribution.
• Private placement: Sale of securities to a small group of preselected investors; commonly used by private companies.
• PIPE: A type of private placement executed by a company that is already publicly traded; it combines private negotiation with eventual public resale through registration.

Subscription agreement (brief)

A subscription agreement is the contract under which an investor agrees to buy securities—specifying quantity, price, timing, and any conditions or backout provisions. In PIPE deals, it formalizes the private purchase and related terms.

Bottom line

PIPEs are a practical, relatively fast way for public companies—especially smaller or mid‑size issuers—to raise capital without the delays of a full public offering. They offer benefits to both issuers (speed and reduced regulatory burden) and investors (discounted entry and potential strategic upside), but they also carry risks such as dilution and resale restrictions that need careful evaluation.