Preferred stock
The share class investors buy, carrying rights that common stock does not have.
Why it matters
Almost all venture investment is preferred. The rights attached to it, rather than the share count, are where the real negotiation happens and where your exit outcome is determined.
A worked example
Investors hold Series A Preferred with a 1x liquidation preference; founders and employees hold common. At exit the preferred is paid first.
What is typical
Standard rights include a liquidation preference, anti-dilution protection, pro rata rights, information rights and some protective voting provisions.
Related terms
Liquidation preference
The amount investors are paid out of exit proceeds before common shareholders receive anything.
Read more →Participating preferred
Preferred stock that takes its liquidation preference AND then shares in the remaining proceeds according to its ownership.
Read more →Anti-dilution
Protection that adjusts an investor's effective share price if the company later raises at a lower valuation.
Read more →Run your raise on this
VCTerminal models these terms on your real cap table, so you can see what a term sheet pays you before you sign it.
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