Token Sale vs PIPE, ATM and Convertible: Which Microcap Financing Tool Is Least Dilutive

Small listed companies are raising money in a market where the rules keep changing. In 2025, smaller life sciences companies completed 38.3% fewer PIPEs and registered direct offerings above $10 million compared to 2024, according to Wilson Sonsini’s 2025 PIPE and RDO Report. A registered direct offering, or RDO, is a share sale to selected investors under an existing registration. In March 2026, SEC staff confirmed in Corporation Finance Interpretation 116.26 that a company can continue selling shares under an existing ATM program even after its public float falls below $75 million. Public float is the market value of shares not held by insiders. In May 2026, the SEC proposed a rule that would allow more companies to conduct shelf offerings regardless of the size of their public float. However, that rule is still a proposal at the time of writing.

None of these changes solve the main problem. Each financing tool pays for cash with shares, or with the right to buy shares, at a discount. As a result, many founders now ask whether a token sale can avoid this problem. Whether it works depends on the company. This article compares the four tools and sets out the conditions that decide the fit.

What PIPEs, ATMs and Convertibles Really Cost Microcap Companies

The discount is the number that appears on every term sheet. However, the real cost is hidden in the other terms of the deal. Wilson Sonsini’s report analyzes 163 PIPEs and RDOs completed by U.S. technology and life sciences companies in 2025. Each company in the report raised at least $10 million. This makes the report a useful public benchmark for the cost of these deals.

PIPEs: the discount is the smallest part of the bill

A PIPE (private investment in public equity) is a private sale of a listed company’s shares to a small group of investors. In 2025, PIPEs were priced at an average discount of 5.0% to the market price. On its own, this number appears modest.

However, warrants change the calculation. A warrant gives the investor the right to buy additional shares later at a fixed price. In the 57 deals that included warrant coverage, the warrants averaged 113.9% of the shares sold, with a median of 100%. In other words, a company that sold one million shares also gave investors the right to buy another one million shares. Furthermore, placement agents charged an average cash fee of 5.3% of the amount raised.

The new shares also reach the market quickly. Investors required registration rights in 91.7% of PIPEs. These rights let investors resell their shares soon after the deal closes. Without them, Rule 144 (the SEC rule on reselling restricted shares) would hold most buyers for at least six months. Registration rights remove that wait, so they decide how fast the new supply reaches the market. The report also divides investors into two groups. The first group conducts little research and focuses only on the financial terms. The second group studies the business in detail. Deals led by the first group carry the highest cost of capital for the company. Speed is the one clear advantage of a PIPE. A PIPE can usually be structured and closed in under two weeks.

The numbers add up quickly on a real deal. On a $10 million PIPE, the 5.3% average agent fee comes to $530,000. The 5.0% average discount costs roughly another $500,000 in share value. That is over $1 million before any warrants are counted.

ATMs: capped by the baby-shelf rule

An at-the-market offering (ATM) allows a company to sell new shares into the stock market over time. A sales agent handles the sales at the current market price, so there is no negotiated discount. The main limitation is the baby-shelf rule. Under this rule, a company with a public float below $75 million may sell only one-third of that float through a Form S-3 in any 12-month period. Form S-3 is a short-form registration that lets eligible companies offer securities over time. For example, a company with a $30 million public float can raise approximately $10 million per year through this method. 

Wilson Sonsini notes that this cap can prevent a small company from conducting any registered offering at all. In that situation, a PIPE becomes the only realistic option. The March 2026 SEC staff interpretation offers relief in one specific case. A company that set up an ATM program while above the $75 million limit can continue selling the full amount it registered in its prospectus supplement. However, a company that starts below the limit remains capped.

ATM sales continue for several months. As a result, the market can see the new supply of shares coming. This is the hidden cost of an ATM. It appears in the stock price rather than on the term sheet.

Convertibles: where reset and ratchet terms turn toxic

A convertible note is a loan that the lender can convert into shares at a set price. In the 2025 report, 35 of the 163 deals included convertible securities, and all but three of them were PIPEs. The average conversion price was 108.4% of the stock price at signing. This means that many notes start above the market price.

The real danger lies in the adjustment terms. In 48.6% of these deals, the conversion price drops if the company later sells shares at a lower price. Eight deals used a full ratchet. A full ratchet resets the conversion price to match any later lower-priced sale, regardless of how small that sale is. Another 20% of the deals used a variable conversion price, which moves together with the stock price.

Wilson Sonsini describes the result as a death spiral. Each new financing lowers the conversion price. A lower conversion price creates more shares. More shares push the stock price down. A lower stock price then means the next financing dilutes more. The report states that companies typically accept full-ratchet terms only as a financing of last resort. The loan terms add further cost. Interest averaged 6.5%, and where an original issue discount was disclosed, it averaged 7.8% of the loan amount.

All three tools dilute in the end, whether through new shares, warrants, or conversion rights. A token sale is designed to avoid exactly that.

Token Sale vs PIPE: Dilution Impact on Shareholders

A token sale raises money by selling a digital token instead of company stock. The buyer receives a unit that does a specific job inside the company’s product. For example, the token may give access to a service, a discount on usage, or a role in a network that the company operates. A detailed explanation of how a token sale works covers the full mechanics. This section focuses on what changes for shareholders.

The buyer does not receive shares, voting rights, or a claim on the company’s assets. For example, in the launch app TokenMinds designed for TenCap, the token gives holders access, discounts and priority. It carries no revenue share, dividend or treasury claim. As a result, the number of shares outstanding stays the same. The voting control stays the same. Every existing shareholder keeps exactly the same ownership percentage. A PIPE does the opposite. It adds new shares at a discount, and the warrants on top can double the count. In other words, this is the full meaning of “less dilutive” in the title. For listed companies, this is the main appeal of raising capital without issuing equity.

However, the company takes on three new obligations in return:

• Deliver the utility. The token must do the job it promises inside the product.
• Manage the supply. The company controls how many tokens exist and when they are released.
• Live with a second price. The token trades at its own market price, next to the company’s stock price. Its price after launch depends on how much supply is released and whether holders have a reason to use it.

One distinction is important here. A token sale is not a digital asset treasury strategy (a plan where a company buys and holds cryptocurrency as a corporate asset). Wilson Sonsini counts nine of the 121 PIPEs reviewed in 2025, or 7.4%, that were completed to fund these treasury strategies. In those deals, a company sells new shares to buy cryptocurrency. Therefore, they dilute shareholders in the usual way and add crypto price risk on top. A token sale works in the opposite direction. The company issues its own token and keeps all of its shares.

Token Sale vs PIPE vs ATM vs Convertible

Every microcap board asks the same five questions before financing. How much of the company goes to investors? What does the deal cost? How fast does it close? Who ends up on the shareholder register? And how does the market react? The table below scores each tool on those five questions.

The figures for PIPEs, ATMs and convertibles come from Wilson Sonsini’s 2025 data. The token sale column describes how these deals are structured in practice. No public benchmark like Wilson Sonsini’s exists yet for token sales, so that column carries no surveyed figures.

Who buys a token and why they would hold it

Token buyers are usually the company's own users, its community, and crypto funds. A user buys because the token gives access, a discount or a role in the product. That purpose is what keeps the buyer holding after the sale.

PIPE and convertible investors work differently. They buy for the discount, the warrants and the resale rights, and registration rights let them sell soon after closing. A token sale only keeps its buyers if they value the utility more than a quick exit. Therefore, the company should test that demand before launch.

Is a token sale less dilutive than a PIPE or convertible note?

Yes, on the share count, and by design. A PIPE adds new shares at a discount, and the warrants can double that number. A convertible note adds shares later, at a price that may keep falling. A token sale adds no shares at all.

However, two conditions apply. First, the token needs real utility. A utility token gives its holder access to a product or service. A security token, by contrast, carries an ownership or profit claim on the issuer. If the token has no real use, buyers will treat it as a bet on the company and price it that way. Second, undiluted does not mean free. The costs move from the shareholder register to the legal budget, the calendar, and the token’s own price. A token sale carries three cost groups: an up-front service fee, legal work, and budgets for key opinion leaders (KOLs) and PR. Third-party costs can be paid directly by the company to creators and media partners. A full breakdown of what a token launch costs a traditional company shows where that money goes.

How does token capital raising compare with an at-the-market offering?

An ATM is the cheapest way to sell shares, because the price is the market price. However, the baby-shelf rule limits the amount. A company with a public float below $75 million cannot sell more than one-third of that float in a 12-month period. If the company needs more than that, an ATM alone cannot deliver it.

A token sale may sit outside the float cap if the token is not a security. In that case, it falls outside securities registration altogether, so the S-3 limit does not apply. Whether the token is a security depends on the Howey test, the Supreme Court standard for what counts as an investment contract. The TenCap design described earlier shows one way to stay on the right side of that line. The token was built for access, discounts and priority only, with no claim on revenue or treasury. It also had to fit a planned US and UAE structure while the CLARITY Act was still pending, so it was kept out of security-token territory and designed to be upgraded later if the rules change. Securities counsel should confirm any structure against the Howey test and the SEC’s rules before the sale is marketed.

The trade-off is cost and time, both paid up front. If the SEC adopts its May 2026 proposal, ATM access for smaller companies would expand. In that case, the comparison would move back toward the ATM for companies that only need shares sold at market price. Until then, the cap decides the outcome.

Which Microcaps a Token Sale Fits, and Which It Does Not

A token sale fits a company that already has a product people use, where a token can do a visible job inside that product. It fits a company with a user base or community that would hold the token for its utility, not only to trade it. It also needs a listing on an exchange such as Nasdaq or NYSE American, a jurisdiction that allows the structure, and enough runway for a process that takes months rather than weeks. The practical checklist for a small-cap company token sale explains each of these conditions in detail.

The build itself is the shorter part of that timeline. A typical build covers the sale and vesting contracts, an admin console, a liquidity pool on a decentralized exchange, and contract verification at mainnet. TenCap’s tier-gated launchpad for an investor network, for example, is scoped at approximately five weeks, from a one-week prototype to mainnet deployment and handover. Legal review and community building run before and around that build, and they set the full timeline.

A token sale does not fit a company with no product to attach a token to. It does not fit a company that needs cash within 30 days, because only a PIPE or RDO closes that fast. Nor does it fit a company whose real goal is to hold cryptocurrency as a treasury asset. That is a digital asset treasury raise, and it dilutes shareholders in the usual way.

Building the buyer base is a separate project from building the token. The playbook for token sale marketing before a pre-sale covers that work. A company should also check its existing deal documents first. Wilson Sonsini found that 55.2% of 2025 deals restricted the company from further issuances for an average of 65.6 days, and 49.7% carried restrictive covenants. Those terms need to be read against a token plan before the plan goes any further.

Alternatives to toxic convertible financing for small public companies

Three alternatives exist. The first is a fixed-price PIPE or RDO with no price-based reset. Clean terms are available in the market. In 2025, 68.6% of convertible deals used a fixed conversion price, and 51.4% carried no price-based anti-dilution at all. The second is an ATM, where the public float allows it, or once the cap is lifted if the SEC proposal becomes a rule. The third is a token sale, where the fit conditions above hold.

The wrong answer is a convertible note with a ratchet, signed because it closed fastest. The 2025 data shows that speed and clean terms can exist in the same fixed-price deal. A review of capital raising services for companies shows how advisors usually split the legal, structuring and distribution work across these options.

Where a Token Sale Belongs in a Microcap Financing Plan

A token sale does not replace the microcap toolkit. It is a fourth tool with a narrow fit. For a company with a live product, a community and time, it can raise capital without touching the share count. No PIPE, ATM or convertible can make that claim. For a company without those three things, it adds legal cost and a second traded price on top of the original problem.

Boards can set the dilution question aside, because the data already answers it. The real test is whether the company can carry and fund the three obligations listed earlier: delivering the utility, managing the token supply, and living with a second price. That answer comes from a fit assessment before any structuring starts.

Get a Token Fundraising Fit Assessment With TokenMinds

The sections above show that the saving on the shareholder register only holds when the product, community, jurisdiction and runway can carry a token. The next step is to check each of those conditions against the company’s own facts.

TokenMinds has run token sales end to end since 2017, and works on token sale strategy, tokenomics, and go-to-market for traditional and listed companies moving into token-based capital raising. The work covers token models built around real product usage rather than speculation, legal structuring that settles the classification question before marketing begins, investor and community outreach sized to the raise, and launch execution through to listing. Its token fundraising fit assessment checks a company’s business model, jurisdiction, community and runway against a token sale in one pass, so the team walks in with a financing need and walks out with a clear answer on fit, the obligations a token would add, and a plan for the raise or a reason to pick a different tool.

Book a token fundraising fit assessment with TokenMinds.

FAQs

Is a token sale less dilutive than a PIPE or convertible note for a microcap?
Yes, on the share count. A token sale adds no shares. In 2025, PIPEs priced at an average 5.0% discount, and warrants averaged 113.9% of shares sold where attached. 48.6% of converts carried price resets. The trade-off is that the token must do a real job in the product, or buyers will price it as a bet on the company.

What are alternatives to toxic convertible financing for small public companies?
A fixed-price PIPE or RDO without price-based resets, an ATM where the baby-shelf cap allows, or a token sale where the company has a product, a community and time. In 2025, 68.6% of convertible deals used a fixed conversion price, so clean terms are available.

How does token capital raising compare with an at-the-market offering?
An ATM sells shares at market price but is capped at one-third of public float for companies under $75 million. A token sale adds no shares and may sit outside the float cap if the token is not a security. However, it costs more up front and takes months rather than weeks.

When is a token sale the wrong tool for a microcap?
A token sale is the wrong tool in three cases. The company has no product to attach a token to. The company needs cash within 30 days, because only a PIPE or RDO closes that fast. Or the real goal is to hold cryptocurrency as a treasury asset, which is a digital asset treasury raise and dilutes shareholders in the usual way.