Liquidation preference
Details
In a , holders of Series A Preferred shall receive, prior to any distribution to , an amount equal to 1.5x the Original Purchase Price plus declared but unpaid dividends, and shall thereafter participate with on an , subject to a cap of 3x the Original Purchase Price.
In plain English
If the company is sold, investors get 1.5x their money back first, then also share in what's left alongside founders, until they've received 3x.
Why you might care
In a modest exit (say $60M), this can move several million dollars from founders and employees to investors. 1x is the market norm for Series A.
Suggested ask
Propose 1x preference. If they insist on participation, ask for 1x with a 2x cap.
Explore exit proceeds
What could common shareholders receive?
| Terms | Series A | Common |
|---|---|---|
| Draft 11x participating · no cap | $23.2M | $36.8M |
| Draft 21.5x participating · 3x total cap | $28.8M | $31.2M |
| Proposed ask1x non-participating | $14M | $46M |
At a $60M exit, the proposed ask leaves $14.8M more for common than Draft 2.
How Draft 2 pays out
- Series A preference paid first: $21M (up to $21M).
- Series A participation: $7.8M (20% of the remainder, limited by the $42M total cap).
- Remainder for common: $31.2M.
Illustration only. Assumes $14M invested at $56M pre-money: Series A owns 20%, common 80%, with no further dilution. Common means all common shareholders together, not your personal payout. No other preferred classes, debt, fees, taxes or unpaid dividends; the option pool is included in the common bucket. Investors may choose conversion instead of the preference. Ask counsel to confirm the cap and payout mechanics.