What Is an At-The-Market (ATM) Offering? The Complete Guide for Investors
Introduction
If you invest in small-cap or micro-cap stocks, you've almost certainly been on the wrong end of an ATM offering — even if you didn't realize it at the time. At-the-market offerings are the most common form of dilution in small-cap equities, yet most retail investors have no idea how they work, when they're happening, or how to spot the warning signs.
An at-the-market (ATM) offering is a mechanism that allows a public company to sell newly issued shares directly into the open market over time, at prevailing market prices. Unlike a traditional secondary offering where shares are priced and sold all at once, an ATM lets the company drip shares into the market whenever it wants — quietly, gradually, and often without any announcement on the day of sale.
For investors, this matters because every share sold through an ATM dilutes your ownership. If you trade small caps without understanding ATMs, you're flying blind.
How ATM Offerings Work
The mechanics of an ATM are straightforward once you understand the pieces involved:
- The company files a shelf registration (Form S-3) with the SEC. This is like getting pre-approval to sell securities in the future. A shelf registration can cover multiple types of offerings — common stock, preferred stock, warrants, debt — up to a total dollar amount.
- The company enters into a sales agreement with an investment bank. This bank becomes the "agent" for the ATM. The agreement specifies the maximum dollar amount of shares that can be sold (for example, $50 million) and the commission the bank earns — typically around 3%.
- The company sells shares at its discretion. This is the key feature. There's no fixed schedule, no obligation to sell, and no requirement to sell all at once. The company can instruct the agent to sell $500,000 worth of shares on a Tuesday, nothing on Wednesday, and $2 million on Thursday. They can pause for weeks or months, then resume.
- The agent sells shares into the open market at prevailing prices. No discount, no special pricing, no block trade. Shares are sold directly to regular market participants through normal exchange transactions. To the buyer, these shares look like any other sell order.
- The company files periodic updates. Through prospectus supplements and quarterly reports (10-Q/10-K), the company discloses how many shares were sold and how much capital was raised.
ATM vs. Other Types of Offerings
One of the biggest sources of confusion in dilution tracking is the difference between offering types. Here's how ATMs compare:
ATM vs. Follow-On/Secondary Offering: A traditional follow-on offering is priced overnight. The company announces the deal after hours, an investment bank markets it to institutional investors, and shares are priced at a discount (often 5-15% below the closing price). The entire raise happens in one event. An ATM, by contrast, has no single pricing event — shares trickle into the market over days, weeks, or months.
ATM vs. Direct Offering: A direct offering sells shares to a small group of investors (often hedge funds) at a negotiated price, frequently at a steep discount. These are common in micro-cap stocks and are typically the most immediately dilutive. ATMs cause less acute damage because the selling is spread over time — but the cumulative effect can be just as significant.
ATM vs. Shelf Offering: This is where terminology gets confusing. A shelf registration (S-3) is the vehicle — it's the SEC filing that pre-approves future capital raises. An ATM is one method of selling off that shelf. A company with a $100 million shelf could use an ATM to sell $30 million, then later do a traditional follow-on for another $40 million — both under the same shelf.
| Feature | ATM | Follow-On | Direct Offering |
|---|---|---|---|
| Pricing | Market price | Discounted (5-15%) | Negotiated (often steep discount) |
| Timeline | Days to months | Overnight | 1-2 days |
| Buyer | Open market | Institutional | Select investors/hedge funds |
| Price impact | Gradual pressure | Immediate gap down | Immediate gap down |
| Agent fee | ~3% | ~5-7% | Varies |
| Company control | High (sell when they want) | Low (one-time event) | Low (one-time event) |
Why Companies Use ATMs
ATMs have become the preferred capital-raising tool for small and mid-cap companies, particularly in biotech, cannabis, mining, and early-stage technology. Here's why:
Flexibility. The company decides when to sell, how much to sell, and can stop at any time. If the stock drops, they can pause. If the stock spikes, they can sell aggressively into strength. No other offering type gives management this level of control.
Less market disruption. A follow-on offering hits the market all at once — often causing an immediate 10-20% gap down. ATMs spread the selling over time, which generally causes less acute damage (though the cumulative effect can be significant).
Lower fees. At roughly 3% commission, ATMs are significantly cheaper than underwritten offerings (5-7%) or direct offerings. For a company raising $50 million, that's a difference of $1-2 million in fees.
Opportunistic selling. Management can sell on high-volume days, after positive press releases, or during momentum runs. This lets them raise capital at the best possible prices — which is great for the company, but should give investors pause.
No lockup agreements. Traditional offerings often come with lockup periods that restrict further selling. ATMs have no such restriction — the company can sell continuously as long as the authorization is in place.
How to Spot an ATM in SEC Filings
ATMs don't come with loud announcements on the day shares are actually being sold. You have to know where to look. Here are the key filings and signals:
Prospectus Supplement (424B5 filing): When a company establishes a new ATM, it files a prospectus supplement with the SEC. This is the most important document — it contains the maximum offering amount, the agent bank, the commission rate, and the terms of the agreement. Search for language like "at the market offering," "sales agreement," or "distribution agreement."
8-K Filing: Companies often file an 8-K to announce the ATM agreement. This is typically how the news hits the wire.
10-Q and 10-K Reports: Quarterly and annual reports disclose how many shares were sold under the ATM and how much capital was raised during the period. This is how you track actual usage — the ATM authorization tells you the capacity, but the quarterly filings tell you the activity.
Key language to look for:
- "At the market offering program"
- "Sales agreement" or "distribution agreement" with a named investment bank
- "The Company sold [X] shares under the ATM for aggregate gross proceeds of [Y]"
- "Remaining capacity under the ATM" or "shares available for future issuance"
Monitoring these filings manually is tedious. Tools like DiluTracker are purpose-built to surface these events automatically, so you don't have to parse SEC filings every day.
How ATMs Impact Stock Price
The price impact of an ATM depends on several factors. Unlike a follow-on offering where you see an immediate gap down, ATM pressure is more subtle — and in some ways, more insidious.
Trading volume. Higher daily volume means the market can absorb additional supply more easily. A company selling $500,000 in shares per day on a stock that trades $10 million daily will barely register. The same $500,000 on a stock that trades $1 million daily will create meaningful downward pressure.
ATM size relative to market cap and float. This is the single most important factor most analyses overlook. A $50 million ATM on a $2 billion company is a rounding error. A $50 million ATM on a $100 million company is existential. Always compare the ATM authorization to the company's current market cap and free float.
Pace of selling. Some companies sell slowly and strategically. Others, particularly those burning cash with limited runway, sell aggressively regardless of market conditions. The pace of selling — which you can track by comparing quarterly share counts — tells you how desperate management is.
Valuation and management incentives. Management teams tend to sell more aggressively when they believe the stock is overvalued. This creates a natural ceiling effect — ATM selling intensifies at higher prices, which can cap rallies and frustrate momentum traders.
Investment bank quality. Companies using well-known, mid-tier or bulge bracket banks (Jefferies, Cowen, Cantor Fitzgerald) tend to experience less negative impact than those using obscure boutique firms. The bank's reputation acts as a signal of legitimacy.
The ATM overhang effect. This is a dynamic that often gets overlooked: even the mere existence of an unused ATM can weigh on a stock. Investors know the company can sell shares at any time, which creates persistent uncertainty. A large, unused ATM authorization hangs over the stock like a shadow — the market prices in the possibility that it will be used, even if it never is.
Real-World Example
Theory is useful, but seeing an ATM play out in practice makes it concrete.
Capricor Therapeutics (CAPR) established a $40 million ATM facility in early 2020. During May 2020, the company sold approximately 1.8 million shares at an average price of $7.34, raising $13.2 million in gross proceeds.
Here's what stands out:
- Partial usage: The company raised $13.2 million out of a $40 million authorization — about one-third. This left $26.8 million in remaining capacity, which continued to hang over the stock as potential future dilution.
- Strategic pacing: The sales were spread across the month rather than dumped all at once. This minimized the acute impact on any given day but created sustained selling pressure throughout the period.
- Price impact: While no single day showed a dramatic ATM-driven crash, the consistent supply of new shares created a headwind that made it difficult for the stock to sustain upward momentum.
This is the pattern you'll see over and over with ATMs: no single dramatic event, just gradual, persistent dilution that quietly erodes shareholder value over time.
Red Flags: When an ATM Is Most Dangerous
Not all ATMs are created equal. Some are routine capital management tools for growing companies. Others are warning signs that should make you reconsider your position. Here are the scenarios where ATMs pose the greatest risk:
Nano or micro-cap stocks with thin trading volume. When daily volume can't absorb the additional supply, every share sold through the ATM directly pressures the price. These are the situations where ATMs cause the most damage.
ATM size is large relative to market cap. If a $150 million market cap company establishes a $75 million ATM, they're telling you they're prepared to increase the share count by up to 50%. That's a massive red flag.
The company is burning cash with no clear path to revenue. Pre-revenue biotechs and speculative companies that rely on ATMs for ongoing operations are funding their burn rate with your equity. Without a catalyst to drive revenue, this can become a slow death spiral.
Boutique or unknown agent bank. When a company can't attract a reputable bank for their ATM, it usually signals that larger institutions have passed on the deal. This is a negative signal about the company's quality and prospects.
The stock recently ran up on hype or momentum. Be especially wary of ATMs on stocks that have recently spiked. If the stock is up 200% on social media hype, management will sell into that demand. Companies have repeatedly used momentum-driven price spikes as ATM selling opportunities.
How Investors Can Protect Themselves
The good news is that ATM dilution is entirely trackable and largely predictable if you know what to look for. Here are concrete steps to protect yourself:
Monitor SEC filings for new ATM agreements. Set up alerts for 424B5 prospectus supplements and 8-K filings for any stock you hold. A new ATM filing is your early warning signal.
Track share count changes quarter over quarter. Compare the weighted average shares outstanding in each 10-Q. If the share count is growing, the company is selling — and the ATM is the most likely mechanism.
Check remaining ATM capacity. Companies disclose how much of their ATM authorization has been used. If a company has raised $10 million of a $50 million ATM, there's still $40 million of potential dilution ahead.
Watch for prospectus supplement filings. When a company files a new prospectus supplement under an existing shelf, it often signals they're about to begin or increase ATM selling. These filings sometimes fly under the radar because they don't generate press releases.
Compare ATM size to daily trading volume. Quick math: if an ATM authorizes $50 million in sales and the stock trades $2 million per day, it would take 25 full trading days of maximum selling to exhaust the authorization. That's five weeks of constant supply pressure.
Use purpose-built tools. Tracking ATMs manually across a portfolio of small-cap stocks is exhausting. DiluTracker monitors dilution events across the market in real-time, alerting you to new ATM filings, share count changes, and other dilution signals before they impact your portfolio.
Conclusion
At-the-market offerings aren't inherently bad. For many companies, they're a legitimate and efficient way to raise capital without the disruption of a traditional offering. Some well-run companies use ATMs sparingly and strategically, and the dilution they cause is more than offset by the growth that capital enables.
But for every company using ATMs responsibly, there are others using them to quietly drain shareholder value — selling into retail momentum, funding unsustainable burn rates, and diluting investors who don't even know it's happening.
The difference between getting caught off guard and making informed decisions comes down to awareness. Now that you understand how ATMs work, how to spot them, and what the warning signs look like, you're already ahead of most small-cap investors. Stay informed, track the filings, and never assume the share count is staying the same.