Free tool
Who gets what when you sell the company?
Enter your exit price and preferred terms. See the preferred-vs-common split, the per-share prices, and the flip point where converting beats the preference.
Total acquisition or liquidation proceeds.
Total capital behind the preferred class.
1× is standard; higher multiples are investor-friendly.
Takes the preference AND its pro-rata share of the rest.
Common shareholders receive
—
Split at this exit
| Preferred payout | — |
| Preferred per share | — |
| Common per share | — |
How the split moves with exit size
| Exit | Preferred | Common | Common % |
|---|
How liquidation preferences work
A liquidation preference gives preferred shareholders a choice at exit: take their money back first (invested × multiple), or convert to common and take their pro-rata share. They take whichever pays more, so the preference matters most in modest exits and disappears in great ones.
- Non-participating 1× (the founder-friendly standard): the investor takes the larger of their money back or their pro-rata share. Nothing more.
- Participating: the investor takes their money back and then shares the remainder pro-rata. This is "double dipping"; most participating structures carry a cap (often 3×) for exactly that reason.
- Multiples above 1× guarantee a floor return before common sees anything, and compound hard when stacked across rounds.
Worked example
$5M invested for 20% (2M of 10M shares), 1× non-participating. At a $30M exit, converting pays 20% × $30M = $6M, more than the $5M preference, so the investor converts and common splits $24M. At a $20M exit, converting pays $4M, so the investor takes the $5M preference instead and common splits $15M. The flip point is $25M.
The lesson for founders: every preference term you grant is a claim that bites precisely in the middling outcomes, the most likely kind. Model the downside before you sign; our waterfall course walks the full math, tier stacking included.
Doing this on your real cap table
This tool models one preferred class. Vquity's waterfall and scenario module runs the whole stack (seniority tiers, participation caps, escrow, carve-outs, option strikes) against your live cap table and shows every shareholder's take-home at any exit price.
Frequently asked questions
What does non-participating vs participating mean?
Non-participating preferred picks ONE: money back or pro-rata share. Participating preferred takes its money back AND its pro-rata share of the remainder, which is why it's often capped at a multiple like 3×.
What is the flip point?
The exit price where converting to common pays the preferred holder exactly as much as taking the preference. Above it, the preference is irrelevant and everyone shares pro-rata; below it, the preference bites and common absorbs the difference.
Why doesn't this match my lawyer's model?
Real waterfalls stack several preference tiers with seniority ordering, participation caps, escrow holdbacks, management carve-outs, and unexercised options. This tool models a single class to teach the mechanics; Vquity's waterfall module handles the full structure.
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