Preferred stock allows investors to either choose to get their money back or take their percent of the company at exit.
Participating Preferred means that investors will get 1-3x their money back PLUS their % of what remains.
Investors have a choice to get 1x their money back or their %.
Investors do not have a Preference. They will only receive their % of the stock at an exit.
Vesting requires that founders and employees remain employed with the company to keep earning stock. The intent is to keep everyone focused on building value at the company.
Investor makes founders and/or employees re-vest some or all of their stock over a 4 year period from investment date.
The vesting clock starts with the founding of the company.
If vesting doesn't already exist, the investor is not insisting it be put in place.
Acceleration provisions determine what happens to a Founder's – and typically employees' – unvested stock at the time of an exit.
No acceleration of unvested options at the time of an exit.
If the company is acquired and the acquirer decides not to keep an employee, that individual will receive the rest of their unvested stock.
At the time of an exit, founders and employees receive all of their unvested stock.
The anti-dilution clause protects an investor in the event that a future round of financing is done at a lower price than the price they paid.
The investor's conversion price is changed to the new lower share price. All of their old capital is repriced to this lower number.
The investor's conversion price is adjusted using a weighted average formula based on old money, new money coming in, the old share price and the new share price.
No anti-dilution adjustment.
Preferred stock with a dividend is intended to provide a minimum return for the investor in the case that the investment exits below the post-money of their round.
Prefered stock grows in value at 8% per year and accumulates over time.
Preferred stock has no dividend.
Provides an investor with one or more seats on the Board. This is a two sided coin - many investors are very helpful in building the company, but others can obstruct progress or be overly "directive".
Voting controls require the company to get investor's consent to approve certain company actions.
Consent of the majority of the preferred investors required for major actions such as 1) a new round of funding, 2) issuing debt, 3) selling any substantial assets.
No investor approval required for major company actions.
Provides the investor with the right to participate in future rounds of funding.
Investor has the right to invest Super Pro-rata, which means anything above their pro-rata. This can be the a signal of strong support but can also make it difficult to add a new investor if ownership targets can't be met.
Investor has the right to participate to keep their ownership level.
Investor has no right to participate.
Redemption rights provide the investor with the right to demand their money back.
Investor can demand repayment at year 5 with proceeds coming 1/3rd each in years 5, 6 and 7.
No ability for investor to demand repayment.