Preferred Stock

It’s important to grasp general legal concepts and definitions as a startup founder. This page is sourced from Clerky’s Legal Concepts for Founders page.

More of a visual learner? Watch this video:

Now onto the good stuff…

While most startups issue convertible notes or safes in seed financings, some issue preferred stock (which is standard for post-seed financings). Financings where the startup sells preferred stock are known as equity financings, since preferred stock is a form of equity.

Typically, startups create a new series of preferred stock for each equity financing. Startups issuing preferred stock in a seed financings will usually call the new series Series Seed or Series AA. These financings often use forms based on those used in post-seed financings, but that are specifically adapted for seed financings.

By convention, for post-seed investments, the series are designated by letters in alphabetical order. For example, the series created for the first post-seed financing is typically called Series A Preferred Stock. The series created for the next financing is usually called Series B Preferred Stock, and so on.