Ask HN: Question about “preferred shares” vs. “super voting shares”

2 points by valachio 3 years ago | 3 comments

I'm raising capital for a startup for the first time.

At my startup we currently have 2 classes of shares. Class A is a "super voting" share with 10 votes and Class B is a common share with 1 vote. Pretty standard nowadays.

I understand VCs want to buy "preferred" stock with liquidation preferences. How will that work into our dual-class stock system? Will we need to create a Class C share for VCs for the preferred stock? Or is it a special type of stock which does not require a new class of shares to be implemented?

Also, some articles I read say that preferred shares have no voting rights, is that right? Does that mean VCs purchase shares with liquidation preference but with 0 voting power?

Animats 3 years ago |

> At my startup we currently have 2 classes of shares. Class A is a "super voting" share with 10 votes and Class B is a common share with 1 vote. Pretty standard nowadays.

That only works if your CEO is a superhero. Just because Ford, Google, and Facebook did it does not mean you can.

There was a time when the NYSE wouldn't list a stock with more than one kind of share, but they caved on that some years ago due to competition from NASDAQ.

valachio 3 years ago | |

I appreciate the feedback. You're probably right but it gives us something to dream about. But assuming we do have this cap table, how will investors want to purchase preferred shares in the company?

orbz 3 years ago |

My understanding is that each series preferred shares are their own class. It is not uncommon to have many of these after several rounds of funding.

Generally they do not have voting rights, but we’ll have several provisions in the round financing docs that will give them protections (pro-rata, veto, etc). There are also provisions on how and when these preferred shares convert to common shares.