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A forward purchase agreement (FPA) is a type of agreement between an investor and an issuer, usually in the context of an IPO (Initial Public Offering). In an FPA, the investor agrees to purchase a certain number of shares at a future date, typically after the IPO has occurred.

The key benefit for the investor is that they can lock in a price for the shares before the IPO occurs. This can be particularly valuable if the issuer is likely to see significant demand for its shares once they are publicly traded, which could drive up the price. By entering into an FPA, the investor can ensure they will be able to participate in the IPO without having to worry about the share price increasing beyond their budget.

For the issuer, the FPA provides a level of certainty around the number of shares that will be sold after the IPO. This can be valuable in terms of managing financial projections and planning for future growth.

FPAs can be structured in a few different ways. One common approach is for the investor to put down a deposit, which is then applied towards the purchase price of the shares when the FPA is executed. Another approach is for the investor to commit to purchasing the shares at a certain price, with the final price to be determined based on the value of the shares at the time of execution.

FPAs can be a useful tool for both investors and issuers in the context of an IPO. However, as with any financial agreement, it is important to carefully consider the terms and potential risks before entering into an FPA. Working with a knowledgeable financial advisor and legal counsel can help ensure that the FPA is structured in a way that aligns with your goals and interests.

In summary, an FPA is a type of agreement between an investor and an issuer that allows the investor to lock in a price for shares before an IPO occurs. This can provide valuable certainty for both parties and can be a useful tool in certain financial contexts. If you are considering an FPA, be sure to work with experienced professionals to ensure that the terms are structured in a way that makes sense for your unique situation.