Preferred Stockholder Rights Explained

"In addition to traditional terms and conditions found in a company's certificate of incorporation, when an investor finalizes a preferred stock investment, the terms and conditions of the preferred stock will be included in a company's certificate of incorporation. There are several fundamental rights and privileges granted to the holders of preferred stock and these rights and privileges are described in detail in the certificate of incorporation. The rights and privileges include the following categories: dividends, liquidation preference, voting, conversion (including adjustments to the conversion price or antidilution protection), and redemption...

The investors' rights agreement covers four primary rights granted to investors in connection with preferred stock investments. These rights may not be amended or reduced without the approval of a majority of the preferred stockholders. The primary rights include securities registration rights, information rights, preemptive rights to acquire new securities issued by the company, and a grouping of affirmative and negative covenants to which the company must adhere..."

Read more in this Buzz of the Week from VC Experts presenting excerpts from the Handbook of Financing Growth.