&gt; Tech employees need to wake up about common vs preferred shares, and that the former are worthless.
&gt; ...
&gt; They are worthless because they are designed, as a financial instrument, to be fake equity with no real protection from dilution and liquidation preference.<p>You&#x27;ve muddled orthogonal concepts together here.<p>1. Common shares are <i>not</i> worthless.  In general, just ask any founder who&#x27;s had a successful exit.  Founder shares (unless purchased along side financial investors for hard cash) are always common shares; if your straw man were correct, then there would be no wealthy founders.<p>2. Liquidation preference is a negotiated term which <i>does</i> have a rational basis for existing.  Whenever you&#x27;re putting in a larger proportion of the company&#x27;s cash than the ownership you&#x27;re buying, it is crucial to have protection against someone essentially liquidating the company for the cash.  Say investor X is putting in $8 into a company that has $2 in the bank, but X is only buying 10% of the company.  If the company is liquidated for that $10 tomorrow, X gets back $1 and the common stockholders get $9.  (There are other protections against a perverse liquidation incentive, too, but this is the economic one.)<p>3. The &quot;real protection&quot; from dilution is raising reasonable tranches of capital at a monotonically increasing series of valuations, which valuations actually correspond to a clearing price between bid and ask.  Three key items here: &quot;reasonable tranche,&quot; &quot;monotonically increasing,&quot; and &quot;clearing price.&quot;<p>a. Reasonable tranche: raise reasonable sized rounds, because huge rounds create weirdness (lopsided power, outsized compensatory &quot;asks&quot; by investors, etc.).<p>b. Monotonically increasing: needless to say, down rounds are the big dilution problems.  Sometimes they happen because life isn&#x27;t perfect and problems come up.  Sometimes they happen because the company screwed up and raised too much at too high a valuation previously.<p>c. Clearing price: if the company and investor actually agree on the &quot;true&quot; valuation then it&#x27;s easy.  If they still try to force a deal where the company wants a crazy &quot;optical&quot; valuation that the investor doesn&#x27;t really see, then you&#x27;ll get layering-on of sweeteners to make the effective valuation much much lower than the notional, but all kinds of terrible side effects may accrue.