What about preference with a capped participation?
The way capped preferences work is that in a sale of the business, the VC investor gets its investment back (a so-called 1x preference) and then participates with the common in any proceeds from the sale that exceed the preference. Imagine the fairly frequent case of a 2x or 3x capped participation. This means that the VC gets to participate until her return is 2x or 3x, as the case may be, their investment. (If the VC would get more by converting, they will simply convert.) This kind of structure helps the VC in low to intermediate return scenarios. They also really create a divergence of interest between the VC and the holder of common stock, since the VC can get an adequate return in the low to medium sale scenario and the holder of common stock can’t (in part because the money is going to the investors). In effect, there will be scenarios in which the investor is eager to sell and the holders of common stock are not.