Final answer:
Preferred stock is favored by conservative investors seeking steady income and lower risk, and by early-stage investors such as venture capitalists who look for potential growth while avoiding debt obligations.
Step-by-step explanation:
Preferred stock appeals to a specific type of investor—a conservative investor looking for steady income with less risk compared to common stock. Such investors usually prioritize dividend payments over capital gains, and since preferred stocks often offer fixed dividends, they can be attractive. Furthermore, in the event of liquidation, preferred shareholders have a higher claim on assets than common shareholders, although they are subordinate to bondholders.
Early-stage investors such as venture capitalists and angel investors might also be interested in preferred stock when investing in small companies that are reinvesting profits for future growth and do not wish to take on the debt obligations that come with borrowing through banks or bonds. These types of investors are often more involved in the company's management, reducing the information asymmetry and potentially making preferred stock a more informed investment.