Term Sheet Liquidation Preference Calculator

Work out term sheet liquidation preference instantly with clear inputs, formula shown and shareable results.

About Term Sheet Liquidation Preference Calculator

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.

Formulas

Preference claim

Preference = min(Exit proceeds, Invested amount x Multiple)

Investor proceeds

Payout = max(Preference, Exit proceeds x Ownership %)

Worked example

With the default values below, Term Sheet Liquidation Preference Calculator returns Investor proceeds of $7,500,000.00. Change any input above and every figure here is recalculated in your browser.

Inputs used

Amount invested: 5,000,000
Liquidation preference multiple: 1
Exit proceeds: 30,000,000
Investor ownership on conversion: 25

Results

Investor proceeds: $7,500,000.00
Liquidation preference claim: $5,000,000.00
Value if converted to common: $7,500,000.00
Proceeds left for common shareholders: $22,500,000.00

Step by step

1Values used
2Preference claim
3Investor proceeds
4Investor proceeds= 7,500,000.00
5Liquidation preference claim= 5,000,000.00
6Value if converted to common= 7,500,000.00
7Proceeds left for common shareholders= 22,500,000.00

Assumptions and limits

The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
In particular, this calculator does not take inflation, tax, fees or charges or compounding frequency into account.
Figures are rounded for display to 2 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
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.
This is an estimate for general information and not professional financial, tax or legal advice. See the full disclaimer for the limits that apply to this kind of calculator.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

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.

Frequently Asked Questions

What does participating preferred change?

The investor takes the preference and then also shares in the remainder, so common shareholders receive materially less at every exit value.

Why do multiples above 1x matter so much?

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.