Glossary
Preferred Equity
Equity with special rights ahead of common stock — typically including liquidation preference, anti-dilution, and conversion rights. CCPS is the Indian preferred equity instrument.
By Amit Tyagi, Fitoor Capital · AletheiaAI Glossary
Definition
Preferred Equity refers to shares with special rights and preferences ahead of common stock — most commonly liquidation preference (paid before common at exit), anti-dilution protection (more shares at down rounds), preferred dividend rights, and special voting/governance rights on specific matters.
In India, the dominant preferred equity instrument is CCPS (Compulsorily Convertible Preference Shares). In the US, it's typically called Preferred Stock with Series A Preferred, Series B Preferred, etc., as round-specific classes.
India Context
Indian institutional venture investors hold preferred equity (CCPS) throughout their investment. Common equity is held by founders and employees (through ESOPs). The cap table separation matters at exit: preference holders get liquidation preference first; common gets the residual.
Example
A startup is acquired for ₹200Cr. Preferred shareholders hold 50% of cap on as-converted basis, with ₹80Cr collective liquidation preference (1x non-participating). Distribution: preferred holders receive max(₹80Cr preference, 50% of ₹200Cr = ₹100Cr) = ₹100Cr (they take the as-converted share, since it exceeds preference). Common holders receive remaining ₹100Cr.
Frequently Asked Questions
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