Fundraising
Common vs Preferred Stock
Quick definition
Common stock is what founders + employees hold; preferred stock is what investors hold, with downside protection and special rights.
Common stock: ordinary equity with voting rights, last in line in liquidation. Held by founders and employees. Preferred stock: investor stock with liquidation preference (1x non-participating standard), anti-dilution protection, pro-rata rights, board seats, and other protective provisions. In an exit, preferred holders get their preference first, then common splits the rest (unless preferred elects to convert to common for better economics).
Related fundraising terms
SAFE (Simple Agreement for Future Equity)
Convertible instrument commonly used for early-stage rounds.
409A Valuation
Independent valuation of common stock used to set option strike prices.
Cap Table
A record of all ownership interests in your company.
Pro Rata Right
An investor's right to maintain their ownership % in future rounds.
Frequently asked questions
- What is Common vs Preferred Stock?
- Common stock: ordinary equity with voting rights, last in line in liquidation. Held by founders and employees. Preferred stock: investor stock with liquidation preference (1x non-participating standard), anti-dilution protection, pro-rata rights, board seats, and other protective provisions. In an exit, preferred holders get their preference first, then common splits the rest (unless preferred elects to convert to common for better economics).
- Why is Common vs Preferred Stock important for startups?
- Common vs Preferred Stock is a fundraising concept that matters for startup founders because it directly affects fundraising readiness, financial decision-making, or operational discipline at the stage where mistakes are expensive to undo. Founders who understand it have a meaningfully easier time in diligence, board meetings, and investor conversations.
- What category does Common vs Preferred Stock belong to?
- Common vs Preferred Stock is a Fundraising term in the StartupCFO finance glossary — alongside other fundraising concepts that founders, CFOs, and accountants use in daily startup operations and reporting.
- Where can I learn more about Common vs Preferred Stock?
- Beyond this definition, see the related fundraising terms below, or explore StartupCFO's insights and tools that put Common vs Preferred Stock in context. For specific situations, talk to a fractional CFO who can walk through your numbers.
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