Equal ownership percentages can produce different exit proceeds.
Non-participating preferred receives the greater of its available liquidation preference or its as-converted common share, assuming conversion is economically elected. Participating preferred first receives its preference and then shares in the remaining proceeds on an as-converted basis.
This tool compares one preferred class against common, with uncapped participation. A general waterfall needs explicit seniority, multiple preferred classes, participation caps, conversion interactions and other contractual terms. Those cases are outside this model.
The formula, made clear.
- Preference amount
- Invested capital × preference multiple, capped by available proceeds when paid.
- As-converted ownership
- Preferred class’s share of the combined common-equivalent capitalization.
- Founder common share
- Founder’s fraction of the common class only.
Put the numbers in context.
At $10,000,000.00 proceeds, a $5,000,000.00 1× preference and 25% as-converted stake receive $5,000,000.00 non-participating, versus $6,250,000.00 uncapped participating. Common receives the remainder.
| Input | Example value |
|---|---|
| Distributable equity proceeds | $10,000,000.00 |
| Preferred invested capital | $5,000,000.00 |
| Liquidation preference multiple | 1 × |
| Preferred as-converted ownership | 25% |
| Founder share of the common class | 80% |
| Preferred proceeds: non-participating | $5,000,000.00 |
What this calculation assumes
One aggregate preferred class senior to common, no debt, cumulative dividends, caps, multiple classes, seniority tiers, escrow or tax. Non-participating conversion is chosen to maximize proceeds. This is a single-class comparison, not a general liquidation waterfall.
What to consider next.
If documents include multiple classes or participation caps, use a document-specific waterfall. Apply common per-share proceeds to employee options only after this allocation.
How we approach financial models →