[peterjancelis]

An investor buying $200K preferred equity at 5 million pre is not implying that investor would buy the entire company for 5 million cash. The preferred equity makes high valuations possible as the first $200K goes back to the investor.

[huac]

it's kind of a nuance, but an early stage investment is a bet on the founders/core team as much as it is on the idea. so you want the founders to retain significant equity (i.e. not purchase outright) to align the incentives.