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Liquidation Preference Calculator

Compare 1x vs 2x, participating vs non-participating preferences side by side at any exit value. See exactly what each term costs founders.
1x non-participatingStandard
Investor multiple: 2.00x
Founders + everyone else
$60.0M
75.0% of exit
Investor
$20.0M
25.0% of exit
1x participating
Investor multiple: 2.75x
Founders + everyone else
$52.5M
65.6% of exit
Investor
$27.5M
34.4% of exit
2x non-participating
Investor multiple: 2.00x
Founders + everyone else
$60.0M
75.0% of exit
Investor
$20.0M
25.0% of exit
2x participating
Investor multiple: 3.50x
Founders + everyone else
$45.0M
56.3% of exit
Investor
$35.0M
43.8% of exit
The takeawayHold the line on 1x non-participating. At a $80M exit with 25% investor ownership, switching from 1x non-participating to 2x participating costs founders ~$15.0M.

What is the liquidation preference calculator?

Liquidation preference determines how much an investor gets paid back before founders see anything at exit. Two key terms decide the impact:

  • Multiple (1x, 2x, 3x): how much of their investment they get back first.
  • Participating vs Non-participating: do they ALSO take a pro-rata share of remainder, or just one or the other?

Why this matters for founders & operators

1x non-participating is standard. Anything else is unusual and worth fighting hard against. The dollar impact on founders at moderate exits can be enormous — easily 20-40% of total founder proceeds.

The most surprising pattern: at very high exit values (billion-dollar+ exits), liquidation preferences become almost invisible because pro-rata dwarfs the preference. At low to moderate exits ($10-100M), preferences dominate.

How to use this calculator

  1. 1
    Try multiple exit values

    Run the calc at $50M, $100M, $500M, $1B. Watch how preferences disappear at high exits and dominate at low ones.

  2. 2
    Compare your actual term sheet

    If your term sheet has 2x participating, see what it would cost vs 1x non-participating at your realistic exit range.

  3. 3
    Use during term sheet negotiation

    Showing an investor the dollar impact at realistic exits is the strongest argument for sticking to 1x non-participating.

FAQ

What's a 'cap' on participating preferred?+
A cap limits how much investors can take with participating preferences (e.g., 'participating up to 3x then converts to common'). Less aggressive than uncapped participating, more aggressive than non-participating.
Are 1x non-participating preferences ever bad?+
Almost never. At 1x non-participating, investors take whichever is better for them — pref or pro-rata. Founders are protected at high exits and only modestly affected at low ones.
Do all rounds use the same liquidation preference?+
Usually yes for early rounds. Series B+ sometimes negotiates different multiples or stacking. Stacked preferences can become problematic — investors get paid in reverse round order.
What happens to common stock at exit?+
After preferences are paid (or investors convert to common when better), the remainder splits pro-rata across all common stock — including founders, employees, and converted preferred.