Recently, we talked a little bit about the different types of equity offerings you might run into as an angel investor.

Still, I’ve been getting a lot of questions from angel investors who want to know the difference between common and preferred stock.

See, when you invest in a startup, you’re basically signing onto a contract that entitles you to shares of that company once a “trigger event” occurs. (For more on that, click here.)

Once that happens, your investment converts into either common or preferred stock.

While both types of shares make you a part owner of that startup, there are some important functional differences between the two that you should know.

Common stock is usually held by the founders of a company, while investors tend to get preferred stock. The biggest difference between the two is that, come time to make an exit, preferred stockholders get their fair share of the money first. Those with common stock have to wait.

When that exit is a huge acquisition or IPO, the distinction is much less important. But suppose that a startup you invest in sells for less than it was worth when you got in.

In that case, preferred shareholders would get their money back first. Common shareholders would only get theirs if there was still any capital left. Sometimes, by the time preferred stockholders get their money back, the pot is already empty.

This is a pretty common scenario, especially for angel investors with less experience. That’s why I always recommend following the guidance of an experienced angel when you’re first starting out. Investing with recommendations from a seasoned pro is one of the best ways to reduce your chance of failure – and learn to choose better deals that boost your bottom line.

It’s not always easy to find a qualified angel investor with a proven track record. That’s why I created the Angels & Entrepreneurs Network. It’s a platform that hosts thousands of angel investors, startup founders, entrepreneurs, and educators – not to mention dozens of informational resources to help you get started. Just click here to learn more about the Angels & Entrepreneurs Network.

Do you have a question about angel investing you’d like to see answered? Leave a comment below! I’m always open to requests for new content.

And, if you’d like to learn more about common and preferred stock, just check out the video above.

Until next time,

Neil Patel


Comments

48 responses to “Exactly What Your Angel Investment Money Buys You”

  1. worked hard all my life 64 now retired due to heart problems…I need you to make me comfortable for the rest of my life. I only have SS and i have to work part-time. I want to enjoy the rest of my life not die working. If you want to help me i would be greatful. Plus i dont want to be a burdon on my kids.

  2. Hi Neil, Christine here from Cyprus, what I would like to know is, what is the difference between being an investor and an entrepenuer?.
    I have been reading everything that you have been sending to me, and gradually starting to understand but feeling a little nervous as what to start with, as I do not yet have sufficient funds to join your private deals yet.
    Regards Christine.

  3. You’ve talked About when you are able to sell your stock. What I haven’t heard anything about is after you buy in to a company when do you actually get something in writing that you own shares of that companies stock.
    Secondly once there is a company buy-out or the company goes IPO where do you sell your stock if you want to liquidate it. Do you have to go through a broker or do you sell it back to the company

  4. Norman Kelly
    Hi Neal, hope you’re having a great day. Now, I keep getting these emails to upgrade my status in A & E, and I would love to do that. But I would like to start making some money first before I start spending more money.
    I have not seen any company yet that impressed me enough to invest in.
    I’m still waiting and looking.

    • Hey morning Neil, I’d like to know how may I sign up by investing the minimum of $50? It is ideal to start big, but it is wise to start small given my financial limitations. Please get back to me, good day!!!

  5. I would like to know when I join A&E if I would get alerts on certain stocks that you guys recommend and will there be any Pot stocks recommended?

  6. We’re new investors. Why are you showing us startups that are common stock, when perfected stock would be better for us? I want the earliest return I can get.

  7. I am so new to investing an am very nervous on starting in this adventure. So being new to this will their always be help to guide me in the right direction? I want to make the right choices, I know their are risk involved and don’t have a huge amount of finances to lose so just concerned and nervous. I really want to do well as a startup investor.

  8. As an angel investor will I have some one guiding me through this ? I am excited about this but I do not have any expertise in business much less stock, have always been curious how it works .

  9. IT seems to be too much information for me to digest 😰
    Now my question is: how can I start to invest now early? And which companies?

  10. Thanks Neil for that tib bit info. I seem to be developing an interest in the field of investing. I’m 60 yrs old and I am looking beyond the physical aspect of working toward something I can do and love to do at my age.

  11. Your ad caught my attention because I have wanted to bring my product to market however I have not had funding. It is called Baseball Buddy and it is designed for children ages to 8 years old. It is a baseball pitchers training aid. It is designed to get children to go outside and gives them immediate feedback. Parents spend well into the thousands each year for sports equipment for each child. There is over 16 million children in this age bracket playing. I wonder if you could give me some help getting started. I had Mel Stottlemyre at my home before his death. He thought it was a great idea. I am aware this

  12. I like the idea but I do not know enough to invest with confidence so how and where can I get to the comprehension level to do my investing with startups with minimalistic risk?
    I await your response anxiously.
    Thanks

  13. Hi Neil,
    I am very interested in investing in the market but I am new to the stock investing process. I like the idea of Angel investing. How do I research good possible investments?

  14. I am trying to understand investing world.. I have wanted to invest for years but have no experience whatsoever, leaves me in a place of scared to invest / scared not to invest. I am 56 years old, working 12-14 hr shifts 6-7 days a week. Son trying to recover from cancer treatment which has led me to just now at my age purchase a house to give him stability.. I could go on and on but I just need help w investing so many out there saying buy my idea,no buy mine..and have no idea where to turn what to believe.. And I don’t have money to just throw away on a whim.. Please..Help?

  15. Hi there,

    I am interested in learning more about angel investing and have been going through your site. Where do I actually invest my money? (Ie: bank, exchange, startup founder)

    Looking forward to your response.
    Thanks

  16. Hello we are senior citizens that could invest a little money but are leary of getting ripped off. Is the time and money required too much for seniors. We would love to find a way to make money in our retirement. Thank you …Dave

  17. It should be known that these are also negotiated items within the terms. I.e., an Angel is putting in $50k vs. $500k isn’t going to get Preferred Stock, and shouldn’t.

    Same reason why Angels should not get a board-seat… does Uncle Tom add to the company?

    We should educate new Angels that they aren’t going to get the best deal always and it’s not a bad thing. Setting angels up with “get Preferred!” is misleading. Getting more common shares vs. less preferred could result in more money.

  18. I signed up the first day.
    I got couple emails giving me info. Others still keep on taking me to the first video.
    I invested a little in a few names u suggested.
    Others I keep hitting dead end.
    U have to create a new account with each investment. Everyone is on a different launch site? It’s too many accounts and too many places with credit card info. What now?
    How do I know what’s happening to what I put in?
    Where do I see results? What shape the results come?
    Too many questions??

  19. popnrodatbch@aol.com

    dear neil i purchased the $ 79 product and have not received any thing in the mail??? i have received a lot of emails , most that want me to join the 495 dollar platinum group. looking for my members pkg. and would like to start investing, rod beaulieu

  20. I am waiting for printed material to arrive. I called in and was told information was back ordered. In the mean time all I seem to see are requests to invest additional money in angels company. Mr. patel is this some kind of a scam your are running?

  21. One of the first things I read about investing said you need to open a checking account. Not wanting to put the cart before the horse here, I’d like to understand how the payment is made prior to picking the start up
    Thank you Christy

  22. I would like to know whether a $50-$300 investment would get me a Preferred Stock or would it be a Common Stock? How much would you need to invest for Preferred Stock?

  23. When I click on the “Angels & Entrepreneurs Network” link, I get connected to the video I originally watched when I signed up for your program.
    I don’t understand that. I was under the impression that a network is a place where I can communicate with other Angel investors about investments.
    I was also under the impression from the video and the sign up form that you offer or at least recommend two startup companies to invest in per month. Is this correct?
    It sounded pretty straight forward and simple in your video, but from what I’m reading here it is a lot more complicated. I’m a 73 year old widow on Social Security and I can’t afford to invest in lots of money, that was why your offer of investing $50.00 sounded appealing. Not so sure now.

    • Hey Heidi,

      The links in the copy above do lead you to the initial presentation, not the Network itself. To access all the benefits associated with your subscription, head to http://www.angelsandentrepreneurs.com and log in. That’s where you’ll find your deals, reports, Bootcamp, Master Classes, Virtual Boardroom and so much more.

      Blair

  24. Once we have invested into a company. How would we know or how to find out which type of stock we have.? Preferred stock or Common stock.

  25. I am so glad that I found this video I think is super valuable to me right now since I am about to make my first Angel Investment and just about a day ago I was very scared and skeptical about the financial commitment (possible risk). My husband and I were almost convinced that this is not for us since we did not know too much about the Convertible Notes with a simple interest earned at rate of 5% per annum and when swapped for stock we will receive 25% more stock per dollar invested. We are about to submit our potential Investment with a Tech Company. Wish me luck, I want to have a good experience. Thanks a lot for the content.

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