Liquidation Preference Calculator
Model startup exit waterfalls with non-participating, participating, and capped preferred shareholders. See who gets what at any exit value.
How Liquidation Preferences Work
Non-Participating Preferred
Non-participating preferred shareholders receive the greater of: (a) their preference amount (investment × multiple) OR (b) their pro-rata share as common shareholders. Once they take their preference, they do not participate further in the remaining proceeds. This is the most founder-friendly type of preferred stock.
Participating Preferred ("Double-Dip")
Participating preferred shareholders receive their full preference amount first, and then also participate pro-rata in the remaining proceeds alongside common shareholders. This can significantly reduce payouts to founders and employees holding common stock, especially at moderate exit valuations.
Participating Preferred with Cap
A capped participating preferred gives investors their preference plus participation in remaining proceeds, up to a total cap (typically 2x–3x their investment). Once the cap is reached, they convert to common for the purpose of further distributions. This is a compromise between full participating preferred and non-participating.
Waterfall order
Liquidation preferences are paid in order of seniority (typically most recent round first). Senior preferred shareholders get paid first. Once all preferences are satisfied, remaining proceeds flow to common shareholders — including founders, employees, and any preferred who participate as common.
What this means for employees
If a company has raised significant venture funding with participating preferred terms and exits at a modest valuation, common shareholders may receive little or nothing. The "effective common price" at which preferred investors are indifferent between preference and conversion tells you the minimum exit value needed for common to benefit meaningfully.