PIPE Deal

Private Investment in Public Equity.

Huh? What is this? Well, you have a company who has stumbled. They think that, if they can just grow their ferret-breeding division, their gourmet coffee bean margins will grow dramatically and everything's gonna be all right. But their equity or stock is in the tank, trading at a crazy low multiple. So it'd be very dilutive to sell shares to raise cash. And because the company is breakeven and on dicey ground, no banks want to lend them money.

The answer: the private markets, even though this company is public. In fact, one brave venture capital firm wants to buy a convertible note from the company that acts like debt if the company doesn't perform, i.e. they have to pay back the VC a reasonably high interest rate, or the VC owns the company. Or...the investment converts into stock priced 50 percent higher than where the company is trading today, i.e. not as diluative as just selling shares today.

That's the notion of a PIPE, wherein a private company makes a private investment in a public company, usually revolving around a conversion feature into their equity. And let's hope that the hope for those ferrets wasn't something the CEO was putting in a PIPE and...smoking.