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They typically do not include special rights like liquidation preferences or guaranteed dividends, making them riskier than preferred shares. However, they can offer substantial upside if the company grows and exits successfully.

What to look for when investing in common shares

1. Company's stage and traction

• Late-Stage Startups: If the company is close to an IPO or acquisition, common shares can be an excellent opportunity to participate in upside with less uncertainty.
• Early-stage startups: For earlier-stage companies, assess the business's momentum, such as revenue growth, customer acquisition, and market share.

2. Dilution risks

• Without anti-dilution protections, common shareholders are vulnerable to value dilution in future funding rounds. Check the company’s financial runway and likelihood of raising more funds.

3. Cap table analysis

• Understand where common shares rank in the hierarchy. In a liquidation event, preferred shareholders are paid first. If the company's valuation is modest, common shareholders might receive little or nothing after preferred claims are settled.

4. Growth potential

• Common shares often represent the most significant upside potential if the company experiences exponential growth or reaches a high valuation at exit.

5. Company’s financial health

• Ensure the company is on a solid growth trajectory and has a clear pathway to profitability or an exit event. Without these, common shares can be riskier than preferred equity.

Advantages of common shares

• Greater upside: In a successful exit, common shareholders benefit proportionally more since they’re not subject to the fixed returns or caps associated with preferred shares.
• Lower cost: Common shares are often cheaper to acquire than preferred shares, making them more accessible for retail investors or those seeking a larger equity position.

Risks of common shares

1. Lower priority in liquidation

• If the company faces financial difficulties or a suboptimal exit, common shareholders are paid only after creditors and preferred shareholders.

2. No special protections

• Common shares don’t come with guarantees like anti-dilution rights or voting power, which could leave you vulnerable in decision-making or future funding rounds.

3. Illiquidity

• Depending on the company’s structure, common shares may be harder to sell on secondary markets.

When common shares are a good opportunity

• High-growth companies: If the company is scaling quickly in a high-potential industry (e.g., fintech, AI, or climate tech) and has a strong leadership team.
• Pre-IPO companies: Late-stage startups nearing an IPO or acquisition often provide strong potential for common shareholders, especially if there is no further dilution on the horizon.
• Fair valuation: If the shares are priced at a discount to the company’s net asset value (NAV) and reflect reasonable growth expectations.

Investing in a company with only common shares isn’t necessarily a disadvantage—it depends on the company’s stage, growth potential, and how well the investment aligns with your risk tolerance. While common shares carry higher risks, they also come with the possibility of greater rewards if the company performs exceptionally well.

At SeedBlink, we provide tools and insights to help you assess opportunities, including those with only common shares. Whether you’re building a diverse portfolio or targeting high-growth startups, we’re here to support your journey.

Ready to explore secondary opportunities? Visit SeedBlink’s Secondaries platform to learn more.

Explore secondary investment opportunities with SeedBlink.