Private Investments in Public Entities (PIPE)
The term private investments in public entities refers to the selling of publicly-traded securities to private investors. Private investments in public entities typically involve the sale of convertible bonds, common or preferred stock.
Private investments in public entities, or PIPE, can be used by publicly-traded corporations to raise capital. PIPE involves the sale of common or preferred stock (a traditional PIPE), or convertible bonds (a structured PIPE), to an investment firm, mutual fund, or private investor. They are used by smaller companies that require fast access to capital markets, but wish to avoid the complexity and cost of more traditional methods of raising funds.
PIPEs can be registered with the Securities and Exchange Commission (SEC) or may be a private placement, which is not registered. Essentially, a PIPE is the sale of shares in a public company that does not occur through a public offering. Existing shareholders are usually hurt by these offerings because the securities are highly dilutive both in terms of equity ownership as well as access to dividends.