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Tranched Preferred: Uses and Valuation Considerations
Tranched preferred stock combines a current issuance with rights to buy additional shares in the future. For investors and companies alike, it’s a simple but effective early-stage financing technique when the need for cash is immediate and likely to continue. Tranched preferred is common in industries that have many technical or regulatory milestones (biotechnology or information technology, for example).
In this white paper, we step through the structure and advantages of tranched preferred. We also look at a typical example, then discuss how this financing structure affects the valuation of the underlying shares.
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