Preferred Stock: Know What You’re Negotiating

For Entrepreneurs and members contemplating start-ups, a discussion of the characteristics (and potential pitfalls) of preferred stock. Preferred stock is the primary type investors are granted and if you aren’t careful when negotiating it, you can give away much more equity in your company than you may intend.

Preferred stock is one of the primary vehicles by which early stage companies acquire funding. Often, the risk profile of a start-up leaves sale of preferred stock to angel investors or venture capitalists as the only avenue to acquire significant capital. While there are a handful of statutory requirements applicable to preferred stock, it is predominantly a creature of contract. This leaves the parties, the start-up firm and the investors, free to negotiate a broad array of terms for the preferred stock that meet the needs of each side, taking into account multiple factors like the stage of the venture, the amount of money at issue and an assessment of the risk. Sale of preferred stock offers a valuable opportunity to start-ups, inasmuch as it provides access to capital which may otherwise be unavailable through traditional lending channels due to high risk in the early stages of a business venture. At the same time, the diverse menu of characteristics available for preferred stock can put the unwary entrepreneur at risk of selling far more equity in her company than she intends. This is particularly true in light of the sophistication of most early stage investors and can become especially painful for business owners in the face of an exit event like an IPO, merger or sale of the company. This presentation will provide an introduction to preferred stock and will address some of its most common characteristics. Following the presentation, attendees should have a working knowledge of the basics of preferred stock and a preliminary understanding of some of the intricacies to consider during funding negotiations.

Featured Speaker(s)

Sandra Wilburn is an associate attorney in the firm’s Research Triangle Park office. She focuses her practice on mergers and acquisitions, private equity finance transactions and general corporate law matters. Her clients span an array of industries, including life sciences, technology and healthcare. In the healthcare space, Ms. Wilburn assists academic medical centers, hospitals and healthcare systems with medical practice acquisitions, joint ventures and reorganizations in conjunction with advising on healthcare regulatory implications related to such transactions. Ms. Wilburn works with clients across multiple stages of organizational development, including early stage and emerging companies, established Fortune 500 firms and other public and private companies.

Prior to joining the firm, Ms. Wilburn was a summer associate for K&L Gates in 2013. She was also a summer associate at another North Carolina law firm in 2012. Before entering the legal field, Ms. Wilburn worked as a sales executive, providing technology consultation and advice to pharmaceutical and biotechnology companies across the United States. Her areas of focus included nucleic acid purification, DNA sequencing, laboratory robotics, and analytic software across the research and clinical development spectrum.

Schedule of Events

6:00-6:30 Registration, Networking and Appetizers*
6:30-6:45 Introductions
6:45-7:45 Speaker
7:45-8:00 Questions and Answers
8:00-8:30 Raffle Prizes, Optional Networking
8:30 Adjourn

(*Appetizers, soft drinks, wine and beer included).