The downside to a PIPE = investors may sell their stock in a short amount of time, driving down the market price. If the market price drops below a set threshold, the company may have to issue additional stock at a significantly reduced price. This dilutes the value of shareholders’ investments.
Short sellers may take advantage of the situation by repeatedly selling their shares and lowering the share price, potentially resulting in PIPE investors having majority ownership of the company. Setting a minimum share price below which no compensatory stock is issued can avoid this problem.
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