The Price of Preferred and How it is Different than FMV.

Sean O’Keefe
Sean O’Keefe

Jul 1, 2022

1 min read
The Price of Preferred and How it is Different than FMV.

Price of Preferred

The value that investors paid per share in the most recent round of fundraising. This is usually higher than the price that employees pay per share (fair market value or FMV).

Investors pay a higher price per share than employees for a number of reasons: 1.) Investors get something called liquidation preferences. In summary, in the event of bankruptcy or acquisition they get their money back before employees (common stock holders) so they pay a premium for this right. There are other reasons, but this is the biggest reason investors pay more per share than employees.

Fair Market Value (FMV)

This is the value per share that employees pay. It is usually lower than the price of preferred (price investors paid in last round of funding). Employees pay a discounted price per share for their stock options (ISO, NSO). This is one of the many advantages of being an employee at a startup. You get to buy in to the company at a lower price than outside investors.

FMV is based on the 409A valuation. Learn more from 409A valuation and FMV articles.

This article is provided for illustrative purposes only; it does not provide personalized tax, legal, financial, or other professional advice. Your situation may be different; consult a professional for information concerning your individual tax, financial, or legal situation before taking any action.