Preferred share

A preferred share is an equity instrument that carries specific rights and privileges over ordinary shares — typically including priority in dividend distributions, liquidation preference, anti-dilution protections and enhanced information rights. Preferred shares are the standard instrument for venture capital and private equity investments, as they provide downside protection (liquidation preference) while participating in upside through conversion to ordinary shares. Their valuation requires a waterfall model allocating total equity value across share classes based on their contractual rights.

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Example: a Series A investor holds preferred shares with: 1x non-participating liquidation preference (CHF 5.0 million), conversion right to 25% ordinary shares, weighted average anti-dilution protection and board representation rights. At a CHF 12 million sale, the investor exercises the preference (CHF 5.0 million > CHF 3.0 million conversion value). At a CHF 30 million sale, the investor converts (25% × CHF 30.0 million = CHF 7.5 million > CHF 5.0 million preference).

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Hectelion values preferred shares and constructs waterfall models in PPA, fundraising and shareholder dispute contexts.