When a company offers shares for sale, it is usually offered at a discount to the current market price. This is done in order to incentivise new and existing investors to purchase the shares and provide additional capital for the company. A discounted share offer allows investors to buy more shares with their initial investment than they would be able to normally and serves to combat the dilutionary effect of equity raises. The right discount will also help the equity raise to go faster – if investors think they are getting a great deal, they will be more likely to buy into the raise faster than if there was no discount on offer.
It also helps mitigate risk for the investors, since they are essentially buying at a lower price than what the share will be sold at in the market. This can ultimately lead to increased investor confidence and help drive up share prices further once the new shares enter circulation. Additionally, offering shares at a discount gives companies access to capital without having to take on large amounts of debt or issue expensive bonds. This can be especially beneficial for start-up companies who may not have the resources to undertake other forms of fundraising. By offering shares at a discount, businesses are able to increase their capital without putting too much strain on their finances.
