Preferred stock

The share class investors typically receive, carrying rights common shares do not — liquidation preference, anti-dilution and often a board seat.

Example

Series A Preferred issued to the lead investor.

Important

Founders and employees hold common. When people say 'the company is worth $50M', that is the preferred price — common shares are usually worth meaningfully less.

Related terms

• Common stock — The ordinary share class held by founders and employees. Last in line if the company is sold or wound up.
• Liquidation preference — The right of preferred shareholders to get their money back first when the company is sold, before common shareholders get anything.
• Cap table — The record of who owns what part of the company — founders, employees, option pool and investors.

Lessons that explain it

• Reading a cap table — Who owns what, in what class, and what happens when the next round lands. (12 min)
• Liquidation preference — The term that decides who gets paid when the company sells — and it matters more than your valuation. (12 min)
• Reading a term sheet — Two to four pages that decide the next several years. What each clause means and which ones actually matter. (15 min)
• The words everyone assumes you know — Founder vs CEO, shareholder vs employee, customer vs user, revenue vs profit, valuation vs cash, equity vs salary. Twenty minutes here saves a lot of nodding along in meetings. (15 min)

All 176 terms in the Founder glossary