Full Definition
Preferred stock is a class of company shares that comes with additional rights and protections not available to common stockholders. In startup financing, investors almost always receive preferred stock, which gives them certain advantages in liquidation events, voting, and dividend payments.
Preferred Stock Rights
- Liquidation Preference: Priority payout in a sale or liquidation
- Anti-Dilution Protection: Price adjustments in down rounds
- Voting Rights: Special voting rights on key decisions
- Dividend Rights: Priority or guaranteed dividends
- Conversion Rights: Ability to convert to common stock
- Information Rights: Access to company financials and metrics
- Board Representation: Right to appoint board members
Real-World Example
Series A investors receive Series A Preferred Stock with 1x non-participating liquidation preference, broad-based weighted average anti-dilution, and one board seat.
Related Terms
Basic ownership shares in a company, typically held by founders and employees with standard voting rights.
The right of preferred shareholders to be paid before common shareholders in a liquidation event.
Protection for investors that adjusts their equity if the company raises money at a lower valuation.
A non-binding document outlining the key terms and conditions of a proposed investment deal.
Ownership interest in a company, represented by shares of stock.
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