Even with a 1X multiplier, that preferred stock still has a good chance to give the 1% employee getting the shaft.
Let's say that there are 5 board members, and 3 of them are VC reps. Those VC companies have 50% of the company, with dibs on the first $50 million. Now, it's time to sell the company.
Pretend the company could be worth between $0 million and $100 million. Figure out what the VCs are likely to sell the company for, remembering that they get 100% of the first $50 million and 0% of the next $50 million.
Let's say that there are 5 board members, and 3 of them are VC reps. Those VC companies have 50% of the company, with dibs on the first $50 million. Now, it's time to sell the company.
Pretend the company could be worth between $0 million and $100 million. Figure out what the VCs are likely to sell the company for, remembering that they get 100% of the first $50 million and 0% of the next $50 million.