What is Preferred Stock?
Preferred Stock
Preferred Stock is a class of equity ownership in a startup that carries special rights, preferences, and privileges above common stock, typically issued to venture capital investors.
Why It Matters for Startups
Governs the legal rights and ownership distribution of the entity; configuring Preferred Stock is critical for managing long-term cap table health and alignment during institutional venture funding rounds and term sheet structures.
Detailed Deep Dive
Preferred Stock is the standard instrument for institutional startup investments. By granting protective provisions, preferred stock mitigates investor risk while aligning exit incentives.
Frequently Asked Questions
Q:What rights are associated with preferred stock?
Liquidation preferences, anti-dilution protections, board seats, special voting rights, and right of first refusal.
Q:When does preferred stock convert to common stock?
It converts automatically during an IPO, or when a majority of preferred shareholders vote to convert.
Quick Facts
- CategoryLegal
- Key ApplicationInstitutional venture funding rounds and term sheet structures
Coverage Trend12 Weeks
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