Let's say you have a right to receive Pref Warrants from a Portfolio Company, but the company wants to change them to Common Warrants or Options that are a part of the stock option plan. All things being equal (e.g. strike and number of options), pref warrants are more valuable than common warrants or options, so what is the best way to get dollar for dollar value and not have a taxable event? Thank you.
As a VC, you should do your best to ensure that you get preferred equity. The reason that preferred is more valuable is because of special rights, that this class of stock receives and that's why it's more valuable. It's sub-optimal for you to value the delta between common and preferred by $$ because there are other more important factors such as where your fund will be in the preference stack at the time of exit that is the difference between a return or a total loss.
My advice is for you to do whatever you can to retain the preferred warrants in this situation.
My advice is for you to do whatever you can to retain the preferred warrants in this situation.