Corporate Finance Why might venture capitalists choose to invest in a start-up’s convertible preferred stockinstead of in: a) debt; b) non-convertible preferred stock; or c) common stock (equity)? Explain

Corporate Finance Why might venture capitalists choose to invest in a start-up’s convertible preferred stockinstead of in: a) debt; b) non-convertible preferred stock; or c) common stock (equity)? Explain

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter19: Corporations: Distributions Not In Complete Liquidation

Section: Chapter Questions

Problem 14DQ

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Question

Corporate Finance

Why might venture capitalists choose to invest in a start-up’s convertible preferred stock
instead of in: a) debt; b) non-convertible preferred stock; or c) common stock (equity)? Explain

Definition Definition Type of stock which is granted priority over dividend distributions as compared to common stockholders. Preferred stocks also do not carry any voting rights. Notably, in a case where a company is going to be liquidated, preferred stockholders have a priority claim on the value of assets of the company as quoted in the balance sheet, as compared to the common stockholders.

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