Liquidation preference
The amount investors are paid out of exit proceeds before common shareholders receive anything.
Why it matters
This single clause can matter more to your personal outcome than the valuation you negotiated so hard for. It determines who gets paid first, and how much, in every exit scenario except the largest.
A worked example
Two founders each raise $8M for 20% and both sell for $40M. With 1x non-participating, common receives $32M. With 2x participating, common receives $19.2M. On a 40% common stake that is $12.8M versus $7.7M.
What is typical
1x non-participating is the market standard for a healthy round. Multiples above 1x usually signal weak leverage, a hard market, or a structured deal.
See what your preference costs you →
Related terms
Participating preferred
Preferred stock that takes its liquidation preference AND then shares in the remaining proceeds according to its ownership.
Read more →Preference stack
The total of all liquidation preferences across every round, which must be repaid before common shareholders receive anything.
Read more →Preferred stock
The share class investors buy, carrying rights that common stock does not have.
Read more →Run your raise on this
VCTerminal models these terms on your real cap table, so you can see what a term sheet pays you before you sign it.
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