What are Participating Preference Shares?
Participating preference shares give investors both their preferential return and a further share in remaining exit proceeds alongside ordinary shareholders.
Participating Preference Share Meaning
The participating preference shares' meaning centres on enhanced downside protection and upside participation. To define participating preference shares in practice, holders first receive their liquidation preference, often their original investment back, sometimes with a multiple, and then also participate pro rata in the remaining proceeds as if they held ordinary shares. A clear definition of participating preference shares is critical for founders, as this structure can significantly reduce the amount left for ordinary shareholders at exit. These shares are typically negotiated in later-stage or higher-risk funding rounds.
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