Work out term sheet liquidation preference instantly with clear inputs, formula shown and shareable results.
A non-participating preference gives the investor the greater of their preference and their as-converted share. Below the conversion threshold the preference protects them; above it they convert and share pro rata. The crossover point is where the two figures are equal.
Preference claim
Preference = min(Exit proceeds, Invested amount x Multiple)
Investor proceeds
Payout = max(Preference, Exit proceeds x Ownership %)
Simplified single-class waterfall for illustration. Real outcomes depend on seniority between rounds, participation rights, accrued dividends, option exercise and transaction costs. Not legal or investment advice.
The investor takes the preference and then also shares in the remainder, so common shareholders receive materially less at every exit value.
Because they subordinate a larger slice of proceeds. A 2x preference on a large round can leave common holders with nothing at a moderate exit.