Two founders. Nearly identical companies. Both sell for $40 million. One takes home $12.8M and the other takes home $7.7M. Neither did anything wrong at the exit. The difference was agreed years earlier, in one line of a term sheet.
Build your cap stack, then drag the exit value. The dark line is you. The dashed line is the same company on clean 1x non-participating terms. The gap between them is what your structure costs.
Common stock and options are treated as one class. Participation caps, debt, transaction fees, escrow and tax are not modelled. Nothing you type leaves your browser.
Founder A and Founder B both raised $8M for 20% of their company at a $40M post-money valuation. Same dilution, same ownership, same headline valuation. Both later sold for $40M, exactly what they were last valued at.
| Founder A | Founder B | |
|---|---|---|
| Raised | $8M for 20% | $8M for 20% |
| Term agreed | 1x non-participating | 2x participating |
| Exit price | $40M | $40M |
| Investor receives | $8.0M | $20.8M |
| Common receives | $32.0M | $19.2M |
| Founder with 40% of common | $12.8M | $7.7M |
Founder B lost $5.1 million for accepting a term they were told was "pretty standard in this market." At a $25M exit the gap is proportionally worse: Founder A's investor takes $8M and leaves $17M to common, while Founder B's investor takes a $16M preference plus 20% of the remaining $9M, leaving common just $7.2M. The founder's share falls from $6.8M to $2.9M.
The term did not change what the company was worth. It changed who received it. Load either scenario into the simulator above and drag the exit slider to watch the gap open and close.
Founder C did everything right on terms. Clean 1x non-participating, every round. But they raised three times: $3M seed, $12M Series A, $25M Series B. Forty million dollars of preferences now sit ahead of common, and Series B is paid before Series A, which is paid before seed.
Founder C still owns 22% of the company. A $45M exit sounds like a good outcome, and 22% of $45M reads as $9.9M. The real number is $2.75M. After the $40M preference stack is repaid, only $5M reaches common at all, and Founder C's 22% is a share of that $5M, not of the $45M.
The terms were never the problem. The stack was. Load the "three stacked rounds" preset above and drag the exit slider down from $300M to watch the floor drop out from under common.
The simulator prints all three as you change inputs. If you take nothing else away: a term sheet is not one number, it is a shape, and you should look at the whole shape before you sign.
A liquidation preference decides how exit proceeds are split. It guarantees investors a set amount before common shareholders, meaning founders and employees, receive anything. A 1x preference returns exactly the amount invested. A 2x preference returns double before common sees a dollar.
Non-participating preferred takes the better of two outcomes: the preference, or converting to common and taking its ownership percentage. It gets one or the other. Participating preferred takes the preference AND then shares in whatever is left, according to its ownership. That second structure is why it is called a double dip, and unlike a plain multiple it never stops applying no matter how large the exit.
When a company raises several rounds, later investors are usually paid before earlier ones. This is called seniority, and the total of all preferences is the preference stack. A company that has raised $30M across three rounds must clear $30M of preferences at 1x before common receives anything, which is why later-stage founders can own a large percentage and still receive very little in a modest exit.
It reduces founder proceeds at every exit below a high threshold. With a 2x preference the company generally has to exit at roughly double its post-money valuation before ownership percentage, rather than the preference, drives what founders receive. Combined with participation, the cost never fully disappears at any exit value.
1x non-participating is the standard market term for a healthy venture round. Multiples above 1x, or participation rights, typically appear when a company has weak negotiating leverage, in a difficult financing market, or in a structured or bridge round.
Frequently yes. Founders routinely trade a real economic term for a headline number that looks better on paper. A higher valuation with 2x participating preferred can pay a founder materially less at exit than a lower valuation with 1x non-participating. Model both before you decide, which is exactly what this simulator is for.
No. The simulator runs entirely in your browser. Nothing is uploaded, stored, logged, or sent to a server, and there is no sign-up or email required.
VCTerminal keeps a real share-level cap table with scenario modelling, so the stack you just simulated stays live as you raise.
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