Participating preferred
Preferred stock that takes its liquidation preference AND then shares in the remaining proceeds according to its ownership.
Why it matters
Sometimes called double dipping. Unlike a plain multiple, participation never stops applying. There is no exit value large enough for it to become irrelevant, which is why it can cost more than a 2x preference without participation.
A worked example
On a $40M exit with $8M invested for 20% at 2x participating, the investor takes $16M first, then 20% of the remaining $24M, for $20.8M total. Common is left with $19.2M.
What is typical
Non-participating is standard. Participation is worth resisting harder than a multiple, and is sometimes capped at 2x or 3x of the original investment as a compromise.
Compare participating vs non-participating →
Related terms
Liquidation preference
The amount investors are paid out of exit proceeds before common shareholders receive anything.
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
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