What Is a PIPE Investment and How Does It Work in 2025?

A PIPE (Private Investment in Public Equity) is when accredited investors, purchase shares of a publicly traded company at a discounted price. This allows the company to raise funds quickly, without going through a long process like an IPO.

In this guide, we’ll walk you through how a PIPE transaction works, the importance of PIPE deals, why companies choose PIPE investments, and the key advantages and risks involved.

Quick insights

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What is a PIPE investment?

• A PIPE (Private Investment in Public Equity) is when a public company sells its shares through a private placement to institutional investors like investment firms, mutual funds, or hedge funds at a price lower than the current market value.
• It’s a way for the company to raise money quickly, without going through a public market offering.
• The shares are typically registered later, allowing investors to sell them once the SEC approves the transaction.

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Types of PIPE investments

The two primary PIPE investments are as follows.

Traditional PIPE

• Investors get common or preferred stock at a set price. Sometimes, it includes dividends or can be converted to common shares.

Structured PIPE

• Investors get convertible debt or preferred stock, which can later be turned into common stock. It often includes protections for investors but may dilute existing shareholders.

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How does a PIPE investment work?

• A public company needs quick capital but doesn’t want to deal with the lengthy process of an IPO.
• Instead, the company sells shares or other securities (like convertible bonds or warrants) directly to private investors (such as hedge funds, mutual funds, or private equity firms) at a discounted price lower than the market value.
• The discounted price makes it attractive to accredited investors, but they face risks like not being able to sell the shares immediately.
• After the sale, the company must register the shares with the SEC (Securities and Exchange Commission). This process usually takes a few weeks. Once approved by the SEC, the private investors can sell the shares on the open market, hoping to profit if the price increases.
• What is the PIPE deal? For the company, PIPE deals are a fast way to raise money with fewer regulatory hurdles than an IPO.
• Investors accept the discounted price because they are taking on some liquidity risk (the risk that they can’t sell the shares immediately) and price uncertainty (the value of the shares could fluctuate). However, they hope to make a profit when the shares become tradable.

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PIPE vs IPO

Aspect	PIPE (Private Investment in Public Equity)	IPO (Initial Public Offering)
Definition	Private investors buy shares from an already public company at a discounted price.	First time a company’s securities are sold publicly.
Process complexity	Faster and with fewer regulatory requirements.	Lengthy and complex, with more regulations.
Pricing	Discounted price offered to private investors.	Market-driven price based on public demand.
Investor type	Only private equity investors (hedge funds, mutual funds, etc.).	General public can buy shares.

Curious about how IPOs work and why IPO investing is important? Discover the key benefits and reasons to invest in IPOs in our detailed guide – why should you invest in IPOs.

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Advantages and risks of PIPE investments

Here are the key advantages and risks to consider.

Advantages of PIPE investments

• No full SEC registration is needed, making the process quicker and simpler.
• A great way for smaller public firms to raise capital when other options fail.
• Shares are sold at a discount, so investors buy below market price.
• Fast access to capital without doing a full IPO.

Risks of PIPE investments

• New shares reduce the value of existing ones—each investor owns a smaller slice.
• Some investors may sell quickly, pushing the share price down.
• If the company underperforms, stock prices might drop, leading to investor losses.
• Not following rules properly can bring legal trouble or fines.

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Why do companies use PIPE investments in 2025?

• Speed: PIPE deals are faster than traditional offerings ideal when quick funding is needed.
• Access to capital: Great option for smaller or riskier companies that can’t easily raise funds in public markets.
• Flexibility: Can be structured as common stock, preferred shares, convertibles, or warrants to suit needs.
• Lower costs: Cheaper than public offerings saves on fees and marketing.
• Strategic value: Brings in smart institutional investors who can offer advice, networks, and market confidence.
• Privacy: Deals are made privately before being announced.
• Less regulation: Fewer steps and paperwork compared to full public offerings.
• Good for tough markets: Useful during market uncertainty faster and possibly discounted funding.

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Real-world examples of PIPE investment

• Archer Aviation, a company developing electric air taxis, raised $215 million in a funding round that included a PIPE deal a private placement of shares.
• Major institutional investors in this round, who would have conducted their due diligence, United Airlines, ARK Investment Management, Stellantis, Boeing, and Ken Moelis.
• United Airlines has shown strong support by investing in Archer three times starting with $25 million in 2021, followed by a $10 million pre-delivery payment in 2022, and now again in this PIPE round. Stellantis, a large automotive company, also led the round by accelerating $70 million in funding.
• This PIPE deal highlights how traditional companies like United and Boeing are backing innovative tech startups.
• With this funding, Archer now has over $1.1 billion in total investment to help develop and test its electric aircraft aimed at transforming urban travel.

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Conclusion

PIPE offerings company a quick and flexible way to raise capital with fewer regulatory hurdles than an IPO, making them a viable option for many in 2025. However, investors should weigh the benefits against the risks, such as dilution and potential price fluctuations.