Authors: Michael Grantmyre and Ryan Unruch

Financing terms intelligence: preferred share financings

Financings which provide for a senior ranking liquidation preference

In 2025, in 20.4% of rounds, the company issued investors a preferred share that ranked senior to all previously existing securities (down from 25.6% in 2024). This is consistent with U.S. data for 2025, including data from Wilson Sonsini, which reported that 21% of U.S. financings included a senior liquidation preference.

Financings which provide for a multiple on liquidation preference

The data outlines the percentage of financings included in the Deal Points Report where the securities issued provided for a multiple liquidation preference (e.g., 1.5x the amount invested). These results are consistent with expectations, with a 1x liquidation preference remaining the market standard for venture financings in 2025 (94.6%).

Financings with participating preferred shares

The proportion of financings in the Deal Points Report which included participating preferred shares is outlined below. These results are consistent with our expectations, in that participating preferred shares are generally atypical of Canadian financings. The percentage of transactions in 2025 that included participating preferred terms (3.2%) was below the average for the preceding four years (6.9%). Based on equivalent U.S. studies, participating preferred were present in approximately 5% of U.S. financings.

Financings with cumulative vs. non-cumulative dividends

This chart highlights the proportion of financings in the Deal Points Report that included rights to cumulative dividends. In 2025, 4.2% of financings included a cumulative dividend (down from 5.2% in 2024). These results are consistent with market expectations, as cumulative dividends are generally uncommon in financing transactions.

Financings with rights to anti-dilution protection, types of anti-dilution protection

As in prior years, in 2025, broad-based weighted average anti-dilution protection continued to be the market standard in Canada (100% of all 2025 financings included in the Deal Points Report), regardless of whether the applicable financing was an up round, down round or flat round. These findings are consistent with similar U.S. studies, including from Wilson Sonsini, where broad-based anti-dilution protection was included in 100% of all U.S. financings regardless of whether the applicable financing was an up round, down round or flat round.

Financings with automatic conversion rights on an initial public offering

In 2025, 96.8% of the financings included an automatic conversion mechanism in connection with a qualified initial public offering (QIPO) (compared to 100% in 2024). This level has remained consistent throughout the five-year period covered by the Deal Points Report.

Financings with automatic conversion rights on an initial public offering, average qualified initial public offerings values by series (in millions of USD)

For financings in the Deal Points Report that included an automatic conversion mechanism, these charts track the average and median minimum gross proceeds that a corporation must raise in connection with a QIPO to trigger the automatic conversion mechanism on a company’s preferred shares.

For 2025, the median QIPO threshold is more indicative of market practice, as outlined below.

Financings with redemption rights

This chart illustrates the proportion of financings that included rights of redemption. This proportion is consistent with our expectations, in that redemption rights are generally uncommon in Canadian financing transactions. The rate of redemption rights in 2025 (7.4%) was slightly higher than in 2024 (4.3%). These findings are also consistent with the financings reported in U.S. deal studies for 2025, including Wilson Sonsini (4%) and Cooley (3.2%).

Board representation

For financings included in the Deal Points Report, the chart below shows the average breakdown of board composition between common directors, preferred directors and independent directors, aggregated across all stages of financings. For 2025, the average size of a company’s board across all financing rounds was 4.9 directors. In addition, 58.9% of those financings included a board seat for the then-current CEO of the company.

Board representation, by series

For financings included in the Deal Points Report, this graph illustrates the breakdown of the average board composition (expressed as a percentage of the overall size of the board of directors), between common directors, preferred directors and independent directors, by series. These results are consistent with our expectations:

• The proportion of directors nominated by common shareholders, relative to the overall size of the board of directors, gradually decreased as the company raised subsequent rounds of financing.
• The proportion of directors nominated by preferred shareholders, relative to the overall size of the board of directors, gradually increased as the company raised subsequent rounds of financing.
• Based on the data analyzed for financings captured by the Deal Points Report in 2025, common directors first represented less than a majority of the board following the Series A financing round, as more independent directors were introduced to the board (note that founders, or some combination of them, are often granted the right to nominate a portion of these independent directors).

Reverse vesting

For financings included in the Deal Points Report in 2025, this chart illustrates the breakdown, by series, of instances where founders were requested to reset all or a portion of the vesting on their existing founder shares, or to put in place a new vesting arrangement where one was not already in place. It is important to note that these figures do not reflect whether founders had vesting arrangements in place at the time of a financing; rather, they capture only instances involving a requirement to impose new or additional vesting. It is exceptionally rare for a founder to be required to re-vest any portion of their shares beyond an early-stage financing.

Information rights and inspection rights granted to preferred shareholders

Under the Investors’ Rights Agreement, certain preferred shareholders are provided with information rights (e.g., the right to receive annual and quarterly financial statements) and inspection rights (i.e., the right to examine the books and records of the company). In 2025, 94.7% of financings granted these rights to some (but not all) preferred shareholders, while 5.3% granted these rights to all preferred shareholders. This aligns with our expectations, in that information and inspection rights are typically only granted to a small subset of the preferred shareholders, specifically “major investors” or those preferred shareholders that hold a negotiated minimum threshold of the preferred shares.

Pro-rata rights granted to preferred shareholders

Similarly, under the Investors’ Rights Agreement, certain shareholders are provided with pro-rata rights (often referred to as pre-emptive rights). Pro-rata rights give investors the right (but not the obligation) to participate in future financing rounds of a company, allowing such shareholders to maintain their existing pro-rata ownership (subject to certain standard exceptions). In 2025, 94.7% of financings granted pro-rata rights to some (but not all) preferred shareholders, while 5.3% granted these rights to all preferred shareholders. Consistent with the data on information rights, the vast majority of financings included in the Deal Points Report only granted these valuable pro-rata/pre-emptive rights to a small subset of preferred shareholders (typically limited only to those preferred shareholders that qualify as “major investors”).

Approval thresholds for preferred shareholders in Voting Agreements, drag-along

Voting Agreements typically include a drag-along provision, pursuant to which, if an agreed threshold of shareholders (and the board of directors) approve an exit transaction, all other shareholders of the company are required to participate in the drag-along transaction. Typically, the drag-along can be triggered by the approval of an agreed percentage of the preferred shareholders, a percentage of the common shareholders, and the board. The charts below analyze each of these categories.

In 2025, 77.1% of the Voting Agreements included in the financings covered by the Deal Points Report required the approval of a single threshold of preferred shareholders (e.g., a majority of the votes attached to the outstanding preferred shares), while 22.9% of the financings included multiple thresholds (up from 9.5% in 2024). This shift appears linked, in part, to widening valuation gaps in 2025 — particularly in AI-related financings — which increased economic divergence between existing and new investors. As a result, new investors increasingly sought series-specific approval rights for key matters such as the drag-along trigger (as well as for amendment thresholds in shareholder agreements more generally) to better protect their position.

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