Toxic Financing Explained We have reviewed countless financing proposal and documents on behalf of our clients over the years. It seems lately that we have had a surge in calls recently asking us to review documents that were for toxic…
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Death Spiral Financing a/k/a toxic financing or toxic funding, is a form of financing that results in an ever increasing number of shares being issued at an ever decreasing price. The results explode the number of issued and outstanding shares, and send the price of the shares to ever lower lows. Basically sending the price of the stock into a downward spiral.
The typical toxic funding has a floorless conversion price, which allows for the conversion of preferred shares or debt into common stock at a price ever closer to zero. The typical company involved in a death spiral financing will have a stock price that is quoted in hundredth or thousandth or a penny.