Valuing preferred shares in startup companies (VC)
Hi everyone,
When a VC firm invests in startups they are normally issued preferred stocks. I believe preferred stocks do give them some ownership in the company (investopedia says "A preferred stock is a class of ownership in a corporation") and at the same time some fixed payments each period.
Thus, how should we value a preferred stock? Would it be based on their ownership in the company (similar to a common stock ie. using a certain percentage of equity value) or by discounting the dividends by a discount rate?
I previously thought it would be the latter, but reading some reports of VC firms gave me the impression that preferreds do indeed confer ownership and hence should be valued like equity.
Thank you.