Brady Ware & Company

At some point, all business partnerships end, one way or another. When things work out, the partnership ends when the business is acquired, and everyone walks away with a truckload of cash. This happens a fair amount of the time (or nobody would ever enter into a partnership). Unfortunately, the reality is that many business partners will not achieve the goal of a big payday, and for whatever reason, you may decide that you’re better off going forward without your current partner.

Last month we published an article on the importance of understanding deal terms when taking on equity capital – specifically, liquidation preferences and convertibility. Convertible preferred stock allows investors to have their cake (downside protection) and eat it (upside return), too. This results in a transfer of value from common shareholders to preferred. All else being equal, these features can make a preferred share much more valuable than its common share counterpart.