Liquidating value of preferred stock

The y-axis is the amount paid to a given class of stock at a given liquidation value.In this example, if the company is sold for M, the Series A shareholders receive M and the common shareholders receive M.Thus, one compromise is a participating preferred with a cap, which will be covered in the next post.I posted recently on the dangers of getting too hung up on pre-money valuation and promised to write a post on the different types of equity securities and the importance of creating a waterfall diagram.

Non-participating preferred stock is favored by holders of common stock (i.e.Series C gets paid before Series B, Series A, and Common; Series B gets paid before Series A and Common; Series A gets paid before Common.Now, on to the bulk of the post: Let’s explore the four types of stock we most commonly encounter in venture deals.This necessitates creating complex spreadsheets to model what happens upon a sale of company at different transaction values.The most sophisticated spreadsheets will also take into account whether options and warrants are in the money at certain transaction values, which will affect whether or not they are exercised, which will then affect the price per share.

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