25+ Types of Equity Offerings & Security Types

Written By

Dan Buckley

Updated

Oct 2, 2024

25+ Types of Equity Offerings & Security Types

In this article, we’re going to cover more than 25 of the most common types of equity offerings and security types.

What are equity offerings?

An equity offering is when a company sells its shares in the open market. This can be done through an equity dealer or on a stock exchange.

There are many different types of equity offerings, and each has its own set of rules and regulations.

The securities that are sold in an equity offering are called equity securities.

A broker-dealer will sell the issuing company’s shares in the open market and receive cash proceeds from the transaction. The broker-dealer then delivers the cash to the issuing company (minus its commission and advisory fees) where the cash can then be used for a variety of purposes.

There are several different types of equity offerings, and each has its own set of benefits and risks.

Types of equity offerings and financing types

Below, we’ll go over some of the most common equity offerings. They come in all sorts of different forms.

At-the-market offering

An at-the-market (ATM) offering is when a company sells its shares in the open market through an equity dealer.

This is typically done over a period of time, rather than all at once like with most other equity offerings. Accordingly, there is generally uncertainty over how much will be raised.

Book building

Book building is a process where investment banks help companies issue new shares, and then they try to sell them to investors at the highest price possible.

The book building process starts with an announcement of the offering, followed by a period of marketing to potential investors, typically called a roadshow.

This helps to assess demand and bankers can determine how much money is likely to flow into the shares. This can help them price the shares appropriately in order to ensure that prices don’t fall and the IPO can be considered a success.

Once the orders are in, the books are “closed” and the allocation of shares is determined.

Bookrunner

The bookrunner is the investment bank that helps to organize and manage a book building equity offering.

Bought deal

In a bought deal, an investment bank buys the entire equity offering from the company before selling it to investors.

This is different from most equity offerings, where the investment bank underwrites the offering and then sells it to investors.

Bought out deal

A bought out deal is when an investment bank buys the entire equity offering from the company and then sells it to investors over a period of time.

This is similar to an at-the-marker equity offering, but with a larger amount of shares being offered.

This option saves the issuing company the costs and time involved in a public issue.

Bridge financing

Bridge financing is when a company raises money temporarily, with the intention of issuing equity or debt later on.

This equity can be in the form of warrants, which give the holder the right to buy shares at a set price within a certain period of time.

By and large, it is any type of funding that helps them “get to the other side” – e.g., a one-time lump in operating costs or investment or emergency funding when revenue suddenly falls.

Continuous equity offering

A continuous equity offering is when a company offers its shares periodically through an equity dealer.

This is different from most equity offerings, where the shares are offered all at once.

Convertible debenture

A convertible debenture is a type of debt that can be converted into equity at some point in the future, usually after a certain period of time.

This equity can be in the form of common stock or preferred stock.

Convertible securities

Convertible securities are financial instruments that can be converted into another security at some point in the future.

This conversion is usually done at a set price, and it’s often used as a way for companies to raise capital without having to issue new equity outright.

Corporate spin-off

A corporate spin-off is when a company spins off a part of its business into a separate entity.

This new entity then becomes its own publicly traded company.

Debt-for-equity swap

A debt-for-equity swap is when a company swaps its debt for equity in another company.

This is often done to reduce the amount of debt on the balance sheet, or to raise equity without having to go through a traditional equity offering.

Direct public offering

A direct public offering (DPO) is when a company sells its equity directly to the public, without going through an investment bank.

This is different from most equity offerings, where the shares are offered through an investment bank.

In a directed share program, a company sells its shares to a specific group of investors, rather than to the public.

This is usually done to raise money from strategic investors or to help employees exercise their stock options.

Employee stock ownership plan (ESOP)

An employee stock ownership plan (ESOP) is a retirement plan that gives employees an ownership stake in the company.

This equity can be in the form of common stock or preferred stock.

Equity carve-out

An equity carve-out is when a company sells a portion of its equity in another company.

This is often done to raise capital, or to strategic investors who can help with the growth of the company.

Exchangeable security

An exchangeable security is a type of equity that can be converted into another security at some point in the future.

This conversion is usually done at a set price, and it’s often used as a way for companies to raise capital without having to issue new equity outright.

Follow-on offering

A follow-on offering is similar to a secondary offering, but usually happens soon after the IPO.

Greenshoe option

A greenshoe option is a type of equity that gives the holder the right to buy additional shares at a set price within a certain period of time.

This is often used to help stabilize the price of the stock after an equity offering.

Initial public offering (IPO)

An IPO, or initial public offering, is when a company first sells its shares to the public.

Pre-IPO financing

Pre-IPO financing is when a company raises money from investors before it goes public.

This is often done to help the company grow, or to pay for expenses related to going public.

Preferred stock

Preferred stock is a type of equity that gives the holder certain rights and privileges, such as priority in dividends and liquidation relative to common stock holders.

Private equity

Private equity is when a company raises money from private investors, instead of going public. Private equity is equity that’s not publicly traded, and it’s usually only available to accredited investors.

This is often done to help the company grow or to finance a buyout.

Private placement

A private placement is when a company sells its shares to a limited number of accredited investors.

Public offering

A public offering is when a company sells its equity to the public.

This can be done through an IPO or a secondary offering.

Reverse merger

A reverse merger is when a private company buys a public company so that it can list its shares on a stock exchange without going through an IPO.

Rights issue

A rights issue is when a company gives its shareholders the right to buy additional shares at a discount.

This happens when a company wants to raise additional equity but doesn’t want to do a public offering.

Seasoned equity offering

A seasoned equity offering is when a company sells additional equity to the public, after it has already gone public.

This is often done to raise capital for growth or expansion.

Secondary market offering

A secondary offering is when a company sells additional shares that it already has issued.

In other words, this is when a company sells equity that it already has on its balance sheet.

This is different from an IPO, where the company is selling equity for the first time.

A share repurchase is when a company buys back its own shares from investors.

This is often done to increase the value of the remaining shares or to reduce the number of shares outstanding. This makes existing shareholders’ stake worth more and is typically a tailwind to the price.

Shelf registration

A shelf registration is when a company files paperwork with the SEC so that it can sell equity at any time in the future.

This is often done by companies that want to be able to raise money quickly, without having to go through the traditional equity offering process.

Stock split

A stock split is when a company splits its shares into multiple pieces.

This is usually done to make the shares more affordable or to increase the liquidity of the stock.

For example, it is commonplace to split expensive stocks, which can help smaller investors and ensure a higher volume of trading.

When a share price of a stock is $1,000, for instance, it can be difficult for some traders to buy shares at that price, which accounts for the popularity of partial shares.

Moreover, options contain 100 shares per contract. So, for a $1,000 stock, one options contract contains the equivalent notional value of $100,000 worth of stock.

Simple agreement for future equity (SAFE)

A simple agreement for future equity (SAFE) is a type of equity that gives the holder the right to buy shares at a set price in the future.

This is often used as a way to raise capital without having to issue new equity outright.

Special purpose acquisition company (SPAC)

A special purpose acquisition company (SPAC) is a type of company that’s created to buy another company.

This is often done as a way to take a company public without going through an IPO.

SPACs were very popular in 2021 before fizzling out. They exist as a form of regulatory arbitrage to do IPOs easier and more cheaply.

Tender offer

A tender offer is when a company offers to buy back its shares from investors at a premium.

This is often done as a way to increase the value of the remaining shares.

Underwritten public offering

An underwritten public offering is when a company sells equity to the public with the help of an investment bank.

This is different from a traditional equity offering, where the company sells equity on its own.

Underwriting

Underwriting is when an investment bank agrees to help a company sell equity to the public.

This includes helping the company set the price of the equity, and then selling the equity to investors.

Venture capital

Venture capital is when a company raises money from private investors, typically in exchange for equity.

This is often done by startups that are looking for seed funding or additional growth funding.

This is often done to help the company grow or to finance a new product or service.

Warrants

A warrant is a type of equity that gives the holder the right to buy shares at a set price in the future.

This is often used as a way to raise capital without having to issue new equity outright.

Equity offerings FAQ

Why would a company issue equity?

There are many reasons why a company might want to issue equity.

Equity can be used to raise capital for growth or expansion, to finance a new product or service, or to change a company’s existing capital structure (such as retiring other forms of financing).

What is the difference between an equity offering and an IPO?

An equity offering is when a company sells equity that it already has on its balance sheet.

This is different from an IPO, where the company is selling equity for the first time.

What are some of the risks of equity offerings?

There are a number of risks associated with equity offerings.

The most common risk is that the share price will fall after the equity is issued, which can lead to losses for the company and for investors.

There is also a risk that the company will not be able to sell all of the equity it wants to, which can lead to a dilution of shareholdings.

What are some of the benefits of equity offerings?

Equity offerings can be a great way for companies to raise capital.

They can also help companies increase their liquidity or the number of shares that are available for trading.

Equity offerings can also help companies increase their shareholder base or the number of people who own shares in the company.

How do equity offerings work? What are the steps in an equity offering?

The process of equity offerings varies depending on the type of equity being offered and the country in which the offering takes place.

However, there are some common steps that are typically involved.

First, the company will need to file paperwork with the appropriate regulatory body. This will include information on the equity being offered, the terms of the offering, and the company’s financials.

Next, the company will need to find an equity dealer to help with the offering. The equity dealer will typically be an investment bank or a brokerage firm.

Once the equity dealer is in place, the company will set a price for the equity and begin marketing the offering to investors.

What are some of the different types of equity?

There are many different types of equity, but some of the most common include common stock, preferred stock, and warrants.

Common stock is the most basic type of equity, and it gives investors a stake in the company.

Preferred stock is a type of equity that gives investors certain rights, such as the right to receive dividends before common shareholders.

Warrants are a type of equity that give the holder the right to buy shares at a set price in the future.

What are some of the different types of equity offerings?

There are many different types of equity offerings, but some of the most common include initial public offerings (IPOs), secondary public offerings (SPOs), and private placements.

An IPO is when a company sells equity for the first time.

A SPO is when a company sells additional equity after it has already gone public.

A private placement is when a company sells equity to a small group of investors that is not open to everyone.

Conclusion