A warrant is a financial instrument that gives its holder the right — but not the obligation — to buy a specified number of shares at a predetermined 'exercise price' (also called the strike price) before an expiry date. In private markets, warrants are most commonly issued alongside debt instruments such as mezzanine loans or venture debt, compensating lenders for taking on equity risk.
Warrants are an equity 'kicker' — they allow debt investors to participate in upside if the company performs well, bridging the return expectations between pure debt and equity. Unlike options, warrants are issued directly by the company and dilute existing shareholders when exercised. Warrants can also be issued to strategic partners or advisers as a form of non-cash compensation.