Good question — what I’ve learned is that the payout (common vs preferred) is totally up to negotiation. You can also play around with which class of preferred stock you get, and where it pays out vis-à-vis other layers of the pref stack.
I wouldn’t agree it’s always “last resort” for both sides (though it certainly may be sometimes)… from the bigger company’s perspective, it’s an opportunistic acquisition that helps nudge them off the VC saline drip. For the smaller company, it’s definitely less preferable than a strategic acquisition at a high multiple paid out in cash, but it doesn’t necessarily follow that the company was out of alternate options. Some entrepreneurs, seeing that they’ve built a solid business (but not one that will be world-changing or unicorn-esque), would rather trade in their work for a chance to be part of a company with more scale and a larger chance of breaking out.
Thanks for the comment :)