Pre-IPO Common vs. Preferred Shares
Definition
Common and preferred shares are different equity classes in private companies. Employees usually hold common stock or options; venture investors usually hold preferred stock with negotiated economic and control rights.
Why it matters
Secondary-market buyers often purchase common shares from employees, while headline private-company valuations are usually set by preferred rounds. The two are not economically identical.
Technical details
Economic differences
Preferred shares may have liquidation preferences, anti-dilution rights, and veto rights.
Common shares generally sit behind preferred in downside exits.
A discount to the last preferred round is not automatically a bargain.
Common holders usually rely on residual value after preferences are satisfied.
Secondary-market impact
When a marketplace quotes a private company at a discount to its last round, investors should ask whether the trade is common or preferred, what rights transfer, and how the company's preference stack affects common-share outcomes.