“Founders preferred stock” usually means one of two things: super-voting shares that give founders more votes per share, or Series FF shares that act like common stock until a founder sells them in a financing. For a venture-track company, Westaway’s position is simple: don’t create dual-class founder stock. Issue plain common stock and protect control through the board and a voting agreement instead.
Key takeaways
- Super-voting founder stock is a dealbreaker for most venture investors, who will usually require it to be converted to ordinary common before they invest.
- Public companies like Meta adopted dual-class structures after the founders had proven themselves, not at formation.
- Series FF stock behaves like common day to day but converts into the new preferred if a founder sells it in a financing, which can make a small founder secondary easier.
- Most first-time founders should issue one class of common stock at formation and skip both.
- Founders keep control through board composition, a voting agreement and narrowly drafted protective provisions, not a special share class.
How do super-voting stock and Series FF stock compare?
| Super-voting founder stock | Series FF stock | |
| Votes per share | Usually 10 or more | One, the same as common |
| Dividends and liquidation | Same as common | Same as common |
| What it’s for | Keeping founder voting control | Letting founders sell a small amount of stock at the preferred price |
| When it converts | Into ordinary one-vote common when transferred, and at a sunset date if the charter has one | Into the new series of preferred when a founder sells it in a board-approved financing |
| When it’s usually adopted | Shortly before an IPO, by founders with leverage | At formation, when it’s used at all |
| Venture investor reaction | Usually a dealbreaker at seed and Series A | Accepted by some investors if small, but not standard |
| Westaway’s view | Don’t use it at a venture-track company | Rarely worth the cost at incorporation |
What is super-voting founder stock?
Super-voting stock gives its holders more than one vote per share. The best-known example is Meta: Mark Zuckerberg holds Class B common stock with 10 votes per share, while public holders have Class A stock with one vote. The two classes share economics equally, but the Class B votes let him control the company while owning a minority of its equity.
The math moves fast. If two founders hold 4,000,000 high-vote shares at 10 votes each and everyone else holds 6,000,000 one-vote shares, the founders own 40% of the company but cast 40,000,000 of 46,000,000 votes, about 87%.
A few times a year a first-time founder asks us to set up the same structure: Class A for employees and investors, Class B for founders. Everyone shares in the upside and the founders keep control. It sounds like the best of both worlds.
Why do venture investors resist it?
The first reason is power. Investors buy preferred stock in part to get protections and a voice in major decisions. If founders hold a block of super-voting shares, much of that leverage disappears. The second is signaling. Many investors read super-voting stock at the seed stage as a sign of an inexperienced or inflexible founding team.
Investors see far more companies than they fund, so the easy answer is to pass. If they still want to invest, they will almost always require every founder and employee to be reset to a single class of common stock before closing, which costs you legal fees and time.
Companies like Meta and Google created their dual-class structures later, once the founders had a track record and leverage to insist on them. A highly successful repeat founder may occasionally negotiate something similar, but it is rare. That is why, for any company that plans to raise venture capital, we recommend one class of common stock for founders.
Where dual-class structures do exist, the high-vote shares usually convert to ordinary one-vote shares when a founder sells or transfers them, with narrow exceptions such as estate planning transfers, and many include a sunset that ends the extra votes after a set period or event. Most are adopted shortly before an IPO, not at formation. A board that adopts one has to weigh its fiduciary duties to the other stockholders, and these structures draw investor scrutiny and stockholder litigation. See Fiduciary Duties of Startup Founders.
What is Series FF stock?
Series FF stock (named for Founders Fund, which popularized it) takes a different approach. It carries no extra votes and no special dividend or liquidation rights. In the day-to-day life of the company it is common stock in everything but name.
The difference appears in a financing. If a founder sells FF shares to an investor in a priced round, the shares convert into the same series of preferred stock the investor is buying. Because preferred stock carries a liquidation preference and other rights, the investor can pay the preferred price for those shares. That lets a founder take a little money off the table at a fair price without the investor ending up with plain common stock.
Do VCs accept Series FF stock?
Some do, when the FF shares are a small slice of each founder’s holdings and the conversion only happens in a financing the board approves. It is not standard, though, and many investors and their counsel will ask why it is there. Founder secondary sales also happen today without FF stock, through a negotiated sale of common at a later round.
There are practical costs too. A separate class of founder stock adds charter drafting, a stockholder vote in later rounds and diligence questions. Because the conversion feature can make FF shares worth more than ordinary common, it can also complicate the fair market value founders use when they buy their shares and file an 83(b) election. Talk to a tax advisor before issuing any class of founder stock other than common. For most first-time founders, the benefit is too small and too far off to justify that at incorporation.
How else can founders keep control?
Board seats matter more than share classes. At the seed stage, founders commonly hold a majority of a small board, for example two of three seats, and investors accept that. A voting agreement among stockholders can lock in who designates each seat. See How Do I Build an Early-Stage Startup Board?
Investors will ask for protective provisions, which give the preferred a veto over specific actions. Negotiating that list so it stays narrow protects founders far more than a special share class. Since 2024, Delaware law also lets a corporation agree by contract with stockholders to give them specified governance rights, which can be another tool in negotiated deals.
For the basics of how share classes work, see Preferred Stock vs Common Stock and How Many Shares Should a Startup Company Have? If you’d like help setting up your company’s stock structure, see our incorporation package or contact us.
