Preferred equity is the most common way of structuring a deal when one investor wants to buy 10% or more of another investor’s business. Preferred equity acts like debt in that it’ll be repaid before equity shares, but comes with some special features for larger investors.
An example will help illustrate how preferred equity works. Suppose Investor A buys $10 million worth of preferred equity in Investor B's company and then invests an extra $5 million into the company directly (in addition to any loans they might make). The discount on their purchase price for the additional investment is 10%, which would normally equate to an increase in share value of 10%. Given that they purchased preferred equity, however, they'd wind up with 11% of the company.