Non-participating preferred stock is a type of preferred stock. In a liquidation or acquisition, investors who hold non-participating preferred stock must choose between receiving their liquidation preference or converting into common stock and receiving payment from the liquidation or acquisition equal to their ownership percentage alongside the other common stockholders. Non-participating preferred stock is by the most commonly used form of preferred stock in US venture financings. A much less common type (due to its investor-friendly structure) is participating preferred stock.
Common stock does not sound exciting. Preferred stock does. First-time founders are looking for excitement—especially when it comes to their millions of initial shares—and so they’re often surprised to hear that they’ll be receiving common, rather than preferred stock when the startup is incorporated.