PIPE Funding

PIPE Funding refers to funding made by making a Private Investment in Public Equity. This means that the investment is a private investment, rather than a public offering or an offering that is made to the general public, and it is made into a company that is already public.

A PIPE is also known as a “private placement”. Pursuant to the U.S. Securities Act of 1933, if a company raises funding pursuant to the requirements of Regulation D, then the offering and sale of securities (i.e., common stock, preferred stock, debentures, etc.) are exempt from securities registration requirements. State laws also need to be examined whenever a company conducts an offering of its securities to investors. These state laws are what are known as the “Blue Sky Laws”.

If your company, whether public or private, is looking for PIPE Funding there are several hedge funds that may provide funding for the purpose of making an acquisition, funding growth or buying out the existing ownership of a company. LeadDog Capital, LP is a Special Situations fund that structures many of its investsments as PIPEs.

Some main funding considerations are the following:

• At least 1 year of operations
• Gross revenues of at least $500,000
• Company would benefit from acquiring competitors or complimentary businesses
• Company is in a growth phase (needs capital for expansion and/or to pay off debt)
• Company can maximize economies of scale by making a strategic acquisition
• Funding for a Middle Management Buyout

Pipe investors are usually hedge funds. They are usually interested in companies that are looking to be acquired and have solid middle management in place to run the company after the acquisition is completed. Most investors like to work with middle management teams to help them obtain the funding needed to purchase a target company or competitor, since middle management teams are usually best qualified to run a company following a change in ownership.

You can find more information here on PIPE Fund and PIPE Funding.

Investors usually look for solid management teams as a major factor in making an investment decision. A well-drafted Executive Summary is a good starting point and should contain the company's last 1 or 2 years of financial statements.

If a Reverse Merger is contemplated the management team should have experience running a public company or be willing to hire a CEO or CFO with public company experience. Running a public company with the right support can benefit a company by making a little easier to raise capital in the public markets, although there is no guaranty.