Preferred Stock

Also called Preferred Shares

The class of shares investors receive, carrying extra rights over common stock: liquidation preference, anti-dilution, and often board or veto rights. Converts to common in an IPO.

Why it matters

Almost all VC money buys preferred, so its terms shape control and payouts. The gap between what preferred and common are worth is exactly where founders need to read the fine print.

For example

The Series A investors receive preferred stock carrying a 1x liquidation preference and a board seat, rights the founders' common stock does not have.

Related terms

Common Stock Liquidation Preference Term Sheet

Go deeper

See how founders actually handle this on Raising your first round, part of the Starting Up hub.

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