Common vs preferred stock

You hold common; investors hold preferred. That one distinction is the biggest reason your shares are worth less than the headline valuation — and why secondaries sell at a discount.

The short version

Common stock is what employees and founders hold. Preferred stock is what investors get, with priority rights — above all a liquidation preference that pays them back first at an exit. Common sits last in line, so it's usually worth less per share.

Side by side

	Common stock	Preferred stock
Who holds it	Founders, employees	Investors (VCs)
Payout order at exit	Last — after all preferences	First — gets money back before common
Price per share	Lower (set near the 409A)	Higher (the headline round price)
Protections	Few	Anti-dilution, vetoes, board seats
In a modest exit	Can receive little or nothing	Still gets its preference

What it means when you sell

Because common ranks behind preferred, a secondary buyer prices your shares below the last round's preferred price — often well below once illiquidity and minority discounts are added. Understanding the exit waterfall shows what your common is really worth in different outcomes.

Why it matters: a 'unicorn' valuation is set by the preferred price. Your common can be worth a fraction of that, especially in a smaller exit — which is exactly why realistic pricing matters when you sell.

Frequently asked questions

Why is common stock worth less than preferred?

Because preferred shareholders get paid first at an exit through their liquidation preference, and hold protections common lacks. Common sits last in line, so each common share is worth less than a preferred share — often much less in a modest exit. The headline valuation reflects the preferred price, not your common.

How much less is common stock worth?

It varies, but private common is commonly valued well below the latest preferred (round) price — the 409A valuation of common is often a fraction of it — and a secondary buyer then applies further illiquidity and minority discounts. The exact gap depends on the preference stack and the company's prospects.

Do employees ever hold preferred stock?

Rarely. Employees almost always hold common stock or options over common. Preferred is typically reserved for investors who negotiate for its rights. This is why modelling the exit waterfall matters for understanding your real value.

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