Free tool
Exit waterfall calculator
What you receive at an exit value once liquidation preferences are paid.
Result
Your proceeds
$32,812.50
| Class | Decision | Preference paid | Proceeds |
|---|---|---|---|
| Series A | Takes its preference | $3,000,000.00 | $3,000,000.00 |
| Common | Shares what is left | $0.00 | $7,000,000.00 |
Where decisions change, up to five times this exit value
- Series A converts to common above $15,000,000.00.
Illustrative only. This is not investment, tax or legal advice. Check the result against your legal documents.
Your proceeds across exit values
0 to 5 times the exit value entered above.The dashed lines mark where a round's decision changes; the dot marks the exit value you entered.
How this is calculated
What the calculator does. It works out how an exit value is divided between the share classes once liquidation preferences are paid, and what your stake receives.
The exit value is what reaches the shareholders: the sale price net of fees and debt.
1. Preferences are paid first, in order of seniority. Each preferred round that keeps its preference is owed its investment times its preference multiple: a 1x preference on $3,000,000 is $3,000,000. The most senior rounds are paid first. Rounds with the same seniority (pari passu) are paid together, and if there is not enough for all of them they share what there is in proportion to what each is owed.
2. What is left is shared by ownership. Common shareholders, every round that has converted to common, and every participating round share the rest in proportion to their ownership.
3. Each non-participating round takes the better of two outcomes: its preference, or converting to common and taking its ownership share. It cannot have both.
4. A participating round takes its preference and then shares in what is left. If it has a cap, its total is limited to the cap: a 3x cap on $3,000,000 is $9,000,000. A capped round converts to common once its ownership share would pay more than the cap.
5. The rounds decide together. One round converting changes what is left for everyone else, so a round's best choice depends on the others. The calculator finds the set of choices that no round would change on its own. Where a round would receive exactly the same either way, it is shown keeping its preference.
6. Your proceeds are your share of your class: if you hold 0.375% of the company as common, and common is 80% of the company, you receive 0.375 ÷ 80 of what common receives.
Where decisions change lists the exit values, up to five times the one you entered, where a round switches from its preference to converting.
What this leaves out. Debt structures, earn-outs, escrow, management carve-outs, dividends that have built up, and anti-dilution adjustments. A SAFE or note that has not converted is not shown as its own class: enter what it will convert into. The result is illustrative. Check it against the company's articles and shareholders' agreement.
Guide
What the tool answers: how much cash you receive at a given exit value, once liquidation preferences have been paid.
Why a large exit can pay you very little
The headline price is not divided by ownership. It is divided by contract, and the contracts were written by people who invested after you on better terms.
Preferred shareholders have a liquidation preference: the right to take their money back before anyone else is paid. Only what remains is shared by ownership. If the preferences are large relative to the exit, there may be very little remaining.
This is the gap between what an exit looks like in the press and what lands in your account.
A worked example
One Series A: $3,000,000 invested for 20%, with a 1x non-participating preference. You hold 0.375% as common.
At a $10,000,000 exit, the Series A compares its two options. Its preference is $3,000,000. Converting to common would give it 20% of $10,000,000, which is $2,000,000. It takes the preference.
That leaves $7,000,000 for the common shareholders, who hold 80% of the company between them. Your 0.375% is 0.375 ÷ 80 of that group, so you receive $32,812.50.
At a $50,000,000 exit, the arithmetic reverses. The Series A's 20% is now $10,000,000, more than its $3,000,000 preference, so it converts. Everyone is paid by ownership and you receive 0.375% of $50,000,000: $187,500.
The exit multiplied by five and your proceeds multiplied by nearly six. That is what the preference costs you at the lower exit.
The crossover point
The Series A converts above $15,000,000, where 20% of the exit exactly equals its $3,000,000 preference.
Every preferred round has such a point. Below it, the round takes its money and you share what is left. Above it, the round joins you and everyone is paid by ownership. Knowing where those points sit tells you which exits are good for you and which merely look good.
Participation changes the shape
A participating preferred round does not choose. It takes its preference and shares in what remains.
Take a second example. Series A of $3,000,000 for 20%, 1x participating with a 3x cap, senior. Seed of $1,000,000 for 10%, 1x non-participating, junior. You hold 0.375% as common, bought for $25,000.
| Exit | You receive | Multiple |
|---|---|---|
| $3,000,000 | $0.00 | 0.00x |
| $5,000,000 | $4,166.67 | 0.17x |
| $20,000,000 | $63,750.00 | 2.55x |
| $60,000,000 | $225,000.00 | 9.00x |
At $3,000,000 the Series A takes the whole exit as its preference. Nothing reaches the Seed and nothing reaches you, in a sale that returned the company's largest investor their money in full.
At $5,000,000 the Series A takes $3,000,000 and then participates in the remainder, ending with $3,222,222.22. The Seed takes its $1,000,000 preference. You receive $4,166.67, which is a sixth of what you put in, from a company that sold for five million dollars.
The cap matters at the top. The Series A's 3x cap would hold it at $9,000,000, so above $45,000,000 it converts to common instead, where 20% pays more.
Common mistakes
Assuming your percentage is your share of the exit. It is your share of whatever is left after the preference stack is paid, which at a modest exit may be a small fraction of the headline.
Ignoring seniority. Rounds are not all paid together. A senior round is paid in full before a junior round receives anything, which is why the Seed gets nothing at $3,000,000 in the example above.
Reading "1x non-participating" as harmless. It is the founder-friendly term, and it still cost you most of your proceeds at the $10,000,000 exit.
Questions
What is the difference between participating and non-participating?
A non-participating round chooses: its preference, or its ownership share, whichever pays more. A participating round takes its preference first and then shares the remainder as well. Participation is more expensive for everyone below it in the stack, which is you.
What does a cap on participation do?
It limits a participating round's total return to a multiple of what it invested. A 3x cap on $3,000,000 holds it at $9,000,000. Once its ownership share would pay more than the cap, it gives up the preference and converts to common.
What is seniority, and does it matter to me?
Seniority is the order in which preferences are paid. Later rounds are often senior to earlier ones. It matters because at a low exit, a senior round can absorb everything before the junior rounds, and the common shareholders, see anything at all.
Where do I find my company's preference stack?
In the articles of association and the shareholders' agreement, usually under liquidation preference or distribution of proceeds. If you hold through a SAFE or a convertible note that has not converted, enter what it will convert into rather than the instrument itself.
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