What is a warrant and why do accelerators use them?
By SuLe · Updated 28 June 2026
A warrant is an instrument giving its holder the right to subscribe for new shares at a set price in the future. Unlike an employee option, it is not limited to staff; unlike a convertible, no money is advanced up front beyond any small fee. Accelerators and some funds take warrants — commonly around 5–7% — as part of a standard package.
Key facts
- A warrant is a right to subscribe for new shares at a set price in the future.
- Unlike employee options, warrants are not limited to staff; unlike convertibles, no money is advanced up front.
- Accelerators and some funds commonly take warrants or equity in roughly the 5–7% range for standard packages — but terms vary widely.
- Exercising a warrant issues new shares and dilutes existing holders.
- Always read the specific programme or investment agreement rather than assuming a market figure.
What exactly is a warrant?
A warrant is a contractual right to buy newly issued shares in the company at a fixed price, exercisable within a defined window. The holder pays little or nothing now; they pay the exercise price only if and when they choose to exercise.
It sits between an option and a convertible. Like an option, it is a right to subscribe for shares later at a set price — but it is not restricted to employees. Unlike a convertible instrument, the holder has not lent or advanced money to the company beyond any nominal warrant fee.
When exercised, the company issues fresh shares, so a warrant is a future claim on equity rather than shares held today.
Why do accelerators and funds use warrants?
Warrants let an accelerator or fund secure a slice of future equity without paying full value for it now. For a programme that backs many startups, that is an efficient, standardised way to share in the upside.
An accelerator might take a warrant alongside, or instead of, shares as part of its package. Commonly these packages sit somewhere around 5–7% of equity, though the range varies widely between programmes.
Because it is standardised, the temptation is to sign without reading. Do the opposite: the exercise price, the percentage, the trigger and the expiry all differ between programmes, so read the actual agreement.
How is a warrant different from an employee option?
Both give a right to subscribe for shares at a set price later, but the context differs. Employee share options are usually granted under a scheme such as EMI, with specific tax treatment and eligibility conditions for staff.
A warrant is a broader instrument. It can be issued to investors, accelerators, lenders or commercial partners, and is not tied to employment or to a tax-advantaged scheme.
So the label often signals who the holder is: "option" usually means an employee incentive; "warrant" usually means an investor, partner or programme taking future equity. The mechanics — subscribe for new shares at a set price — are similar.
How do warrants affect the cap table, and what does UK law require?
A warrant dilutes existing shareholders when exercised, because exercising it issues new shares. Treat it as if it will be exercised when you look at your fully diluted cap table, so the dilution is planned for, not discovered later.
Issuing and exercising warrants runs through the Companies Act 2006: the shares must be properly allotted with the right authorities, and the allotment filed at Companies House. The warrant instrument itself sets the price, window and conditions.
UK venture and accelerator terms sit alongside the BVCA model framework, but accelerator packages are often bespoke — so the programme agreement, not a market benchmark, is what binds you.
| Warrant | Employee option (e.g. EMI) | Convertible (e.g. ASA) | |
|---|---|---|---|
| Who holds it | Investors, accelerators, partners | Employees | Investors |
| Money advanced now | No (beyond any small fee) | No | Yes — paid up front |
| Tax-advantaged scheme | No | Often (EMI) | Not itself |
| Right to | Subscribe for new shares at a set price | Subscribe for new shares at a set price | Shares on conversion |
| Dilution | On exercise | On exercise | On conversion |
Worked example
Zoë joins an accelerator with her hardware startup. The programme provides a small cash investment plus support, and in return takes a warrant over 6% of the company, exercisable at a nominal price within seven years.
Zoë pays nothing now for the warrant itself. But when she models her fully diluted cap table for a later seed round, she includes the 6% as if exercised — because a new lead investor will price the round on a fully diluted basis.
At her seed round the accelerator exercises the warrant, subscribing for its shares at the nominal price. The 6% is issued as new shares, diluting Zoë and the option pool — exactly as her fully diluted modelling had already assumed, so there is no nasty surprise.
Where founders go wrong
Signing a standard accelerator package unread
— the percentage, exercise price and expiry vary widely; read the actual programme agreement.Leaving the warrant off the cap table
— model it as exercised on a fully diluted basis so the dilution is planned, not discovered at your next round.Confusing warrants with employee options
— warrants are not EMI and carry no employee tax advantages; do not treat them interchangeably.Assuming a market percentage
— "commonly 5–7%" is a rough guide, not a rule; the agreement in front of you is what counts.
Related questions
What is a warrant?
A warrant is an instrument giving its holder the right to subscribe for new shares at a set price in the future. Unlike an employee option, it is not limited to staff; unlike a convertible, no money is advanced up front beyond any small warrant fee. When exercised, it issues new shares and dilutes existing holders.
Why do accelerators take warrants?
Warrants let an accelerator take a slice of future equity as part of a standardised package without paying a full price now. They commonly sit somewhere around 5–7% for standard programmes, though terms vary widely. Always read the specific programme agreement rather than assuming a market figure. [More: What are accelerator terms like — and should I sign them?]
How is a warrant different from a share option?
A share option is usually granted to employees under a scheme like EMI, with tax and eligibility rules. A warrant is a broader instrument that can be granted to investors, accelerators or partners, and is not tied to employment. Both give a right to subscribe for shares at a set price later. [More: What is an EMI share option scheme?]
Do warrants dilute the founders?
Yes, when exercised. Exercising a warrant issues new shares at the agreed price, which dilutes existing shareholders just like any new issue. Model the warrant as if it will be exercised when you look at your fully diluted cap table, so the dilution is not a surprise later.
A warrant looks like a minor line in an accelerator package, but a few points of future equity — and the price at which it is exercised — compound through every round that follows. A SuLe solicitor can read the programme agreement, model the dilution, and tell you whether the terms are fair. Book a free term sheet review before you sign the package.
Keep reading: What are accelerator terms like — and should I sign them? · What is an EMI share option scheme? · What is a ratchet? · What is a cap table and how do I keep it clean? · What is an advance subscription agreement (ASA)? · What founder protections should I negotiate in a term sheet?
Primary sources: BVCA — model documents for UK venture capital · Companies Act 2006
