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Do I need preferred stock as a founder?
Do I need preferred stock as a founder?
Yin Wu avatar
Written by Yin Wu
Updated over a week ago

To learn more about preferred vs common stock, read our explainer here

Preferred stock issued to founders at incorporation is most commonly a hybrid between common stock issued and preferred stock.

It is designed to give founders extra liquidity by allowing them to sell their preferred stock to investors in a future financing round.

Although this might sound attractive, investors may be wary of because it might suggest that the founder isn't all-in on their vision. This risk can be reduced by only having a small portion of a founder's total equity in this instrument.

The vast majority of companies we onboard do not have this structure. We recommend discussing with your lawyers whether it makes sense for you, but when in doubt, follow the pack and stick with common.

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