The first thing a sophisticated micro-cap investor checks when evaluating a company with recent financings is the preferred share terms. Specifically: do they convert into common stock?
For Onfolio, the answer is no. Since 2022, we’ve issued approximately $4.5 million in preferred shares. None of them convert into common stock.
This is worth its own post because the distinction between convertible and non-convertible preferred shares is often the difference between a company investors want to own and one they avoid on principle.
Why Preferred Shares Make Micro-Cap Investors Nervous
The typical pattern works like this. A micro-cap company needs capital. It issues convertible preferred shares. The preferred shares have a conversion feature that lets the holder convert into common stock, often at a discount to market price.
If the stock price drops, the conversion becomes more favorable for the preferred holder and more dilutive for common shareholders. More shares enter the market. The stock price drops further. More conversion happens. The cycle repeats.
This is commonly called a death spiral, and it’s destroyed shareholder value at enough micro-cap companies that investors have learned to pattern-match: “preferred shares issued” equals “dilution incoming.”
It’s a reasonable instinct. But it doesn’t apply to every preferred instrument.
How Onfolio’s Preferred Shares Work
Onfolio has issued approximately $4.5 million in preferred shares through two paths.
About $3 million was issued directly to sellers as part of acquisition purchase prices. When acquiring a business, Onfolio structured part of the payment as preferred equity instead of cash. The seller receives a dividend-paying instrument. Onfolio deploys capital into the acquisition without needing to raise external cash.
About $1.5 million was raised through preferred share financing. This capital was used for working capital and to support acquisitions.
In both cases, the terms are the same on the key point: the preferred shares pay a dividend, but they carry no conversion feature. There is no mechanism for them to become common stock. The common share count is unaffected.
What Non-Convertible Actually Means
The practical difference is straightforward. Convertible preferred shares create a claim on the common equity. When they convert, new common shares are issued, and existing shareholders’ ownership percentage shrinks.
Non-convertible preferred shares don’t create that claim. They function more like a fixed-cost financing instrument. Onfolio pays dividends on the preferred shares, and those dividends show up in the parent company’s expenses. But the common equity structure remains exactly as it is.
For investors tracking share count as a signal of management discipline, this is the detail that matters. The capital was raised. It was deployed into businesses that now generate $575,000 per quarter in portfolio operating profit. And the common shareholder base was left intact.
Where the Capital Went
This is the other half of the story. Preferred shares are a financing instrument. What matters is what the capital bought.
The $4.5 million in preferred shares, combined with SPV co-investments and seller notes, funded acquisitions that added approximately $5.9 million in annual revenue and roughly $1 million in annual EBITDA to Onfolio’s portfolio. The blended acquisition multiple across all deals is approximately 3.3x, meaning each business generates enough cash to pay for itself in roughly three years.
The deal structures were covered in detail in a previous post on how we added $5.9M in revenue without spending a dollar of shareholder cash. [Link to zero-cash post]
The preferred shares are one piece of that structure. The non-convertible terms are the piece that directly addresses the dilution concern.
Verify It Yourself
If you’re the kind of investor who reads filings before buying, the preferred share terms are in our SEC filings. Check them. I’d rather have investors who’ve done their own diligence than investors who take my word for it.
Full portfolio performance and acquisition track record: onfolio.com/path-to-profit
If you want to see how these acquisition multiples compound over time, I wrote a full breakdown: The Math of Serial Acquisition.
If this was useful to you, it would probably be useful to someone you know. Feel free to share it or forward it to a friend. One of the hardest things about being a small public company is simply being discovered, and word of mouth goes further than anything else.
Disclaimer: This discusses Onfolio’s capital structure using data from publicly filed SEC reports. It is not financial advice and should not be taken as a solicitation to buy or sell any security. For complete financial information, refer to our SEC filings at sec.gov.