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Common vs Preferred Stock

When investors purchase stock, they generally receive Preferred stock. For example, when you complete a Series A investment, you will modify your Articles of Incorporation to create additional shares of stock typically called Series A Preferred stock. The only thing that makes this stock different from Common stock (the stock that founders own and the stock that employees get when they exercise their options) is that the holders of Preferred shares receive certain rights that the owners of Common shares do not have. In the future, we will discuss some of these rights in the “Term Sheet” section of the Roadmap.

In a “liquidity event” (i.e., if the company is acquired, or if the company “goes public” with an initial stock offering or IPO) the Preferred shares convert to Common shares. But, generally speaking, the owners of Preferred shares are in front of the line to receive proceeds of the sale or IPO.

When you have a second “Series B” investment event, yet another series of Preferred shares will be created (Series B Preferred shares) which will have rights above and beyond those of both the Common shareholders and the Series A Preferred shareholders. And so the story goes on… More to come in the future in the Term Sheet section.