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Rounding Options in the Capital Markets

Published on 23 January 2020

Did you know? Issuers on DealMaker choose to structure 70% of their deals by asking investors to subscribe by a number of securities rather than by an investment amount.

Calculating the number of securities an investor receives is not always a simple process. A fraction of a dollar in an investment amount may be insignificant, but the number of securities it translates to can cause confusion for all parties.

What we often see in the capital-raising process

  • The issuer sets a price per share of $1.50
  • Rounding is not considered and investors complete subscription agreements on paper, with usual investment amounts of round numbers
  • The investment amount of $100,000 is filled in by the subscriber on their subscription agreement for 66,667 shares using standard rounding
  • When legal counsel goes to check the math, they see that 66,667 shares cost $100,000.50, meaning that the subscription agreement values do not match
  • Although a small amount, the shares are not fully funded and paid for, and this mismatch has a ripple effect on:
    • The share ledger
    • Paid up capital
    • Other calculations that will go into legal opinions in the future
  • In addition, the investor’s records may not match the company’s records, causing issues down the road in future transactions, or for the investor’s reporting purposes

The DealMaker Solution

DealMaker works with the issuer and legal counsel to set rounding rules prior to launch. The
company has the option to round down, round to the closest unit, or round up. Coding the rounding rules into DealMaker eliminates uncertainty for investors.

How does it work?

Elegantly! On DealMaker, an investor is shown a real-time conversion of their investment amount (in the deal currency) to the number of securities they will receive (or vice versa).

In certain cases, as shown here, an issuer can allocate/fix the dollar amount or number of securities before the investor starts the questionnaire.

Quick Stats

5%
of deals on DealMaker have
required fractional funding
6%
of deals have a price per unit set
as a fraction of 1¢
70%
of deals are structured to ask for a number of securities (30% ask for an investment amount)