Talk:Participating preferred stock
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[edit]"Venture capital and private equity firms prefer participating preferred stock because it mirrors the terms on which they raise money from their investors. The typical VC or PE fund structure returns money to their investors plus a preferred return (of 7 or 8%) and then the general partners of the fund participate in 20% of the upside (carry), with 80% going to the investors. A VC or PE fund that uses a participating preferred security should be willing to agree to higher valuations or higher option pools."
This is simply not correct. The PE or VC manager is not influenced by the structure of their own funds in the way that they invest on a per portfolio company. Also,the use of a pps does not mean that a higher valuation can be paid. This is classic no capital structure arbitrage, as per Modigliani and Miller. I have deleted this paragraph accordingly.