What is preferred stock and why is given to investors? You’ve got to know your stocks and shares as a startup founder. This is especially true when it comes to giving equity and issuing stock.
Unless you thrive on legal and math, this part of the startup game can seem really confusing at first. If you skipped this class in business school, it’s time for a quick tour of classes of stock, and the difference they can make when it comes to startup fundraising.
For the creative entrepreneur, this can seem about as fun and unsexy as accounting at first. However, knowing your classes of shares can quickly make all the difference in various outcomes, and certainly in what you get out of the ride of this venture.
Those who do take the time to familiarize themselves with this part of being a startup can find it gives them a great advantage in negotiating and achieving a desirable outcome.
Why You Need To Know Your Stocks
If you are wondering what is preferred stock and why is given to investors you need to know that the truth is that you can do everything else perfectly and still end up with an outcome you are kicking yourself for unless you know this part of starting and operating a startup.
What you do with your equity, shares, and ownership splits right from the beginning can really make all the difference in your ability to startup fundraising, recruit talent, grow, and actually create a profitable venture for yourself. It can directly inhibit or enhance your ability to make decisions and to have the impact you set out to have.
When it comes down to fundraising keep in mind that it is all about storytelling. For a winning deck, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
What Is Preferred Stock?
When figuring out what is preferred stock and why is given to investors you need to keep in mind there are two main classes of company stock:
- Common stock
- Preferred stock
Common stock is well, common. It’s what you might be used to in investing in most publicly traded company stocks.
Some major shares are split between preferred and common too. One of the most notable is Warren Buffett’s Berkshire Hathaway shares. There is a massive difference in their pricing. Preferred is the most expensive.
As the term suggests, preferred stocks give shareholders preferential treatment. Put simply, they get paid first, before anyone else.
Why Investors Want Preferred Stock
If you are fundraising for your startup, investors will almost invariably demand preferred stock. This is a key factor when addressing what is preferred stock and why is given to investors.
See How I Can Help You With Your Fundraising Efforts
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