Liquidation Preference Calculator
See who gets paid first, and how much, when your company sells, before you sign the preference clause.
Who gets paid what at $30,000,000
| Exit value | Investors get | Founders and others get |
|---|---|---|
| $10,000,000 | $10,000,000 | $0 |
| $30,000,000 | $10,000,000 | $20,000,000 |
| $100,000,000 | $25,000,000 | $75,000,000 |
Simplified waterfall: the investor takes their preference first (1x of the investment), then the rest splits by ownership. Non-participating means the investor takes whichever is larger, their preference or their ownership share. Ignores seniority layers, options and debt.
Educational estimate, not legal or financial advice.
How it works
Model your exit in 3 steps
Enter how much investors put in, their ownership and their preference multiple (usually 1x).
Choose Participating if the term sheet lets investors take their money back and also share in the rest.
Enter a sale price and see how the money is split between investors and founders.
Worked example
A $5M sale with a 1x preference
Inputs
- Investment
- $2,000,000
- Ownership
- 20%
- Multiple
- 1x
- Preference type
- Non-participating
- Exit
- $5,000,000
Result
- Investors get
- $2,000,000
- Founders and others get
- $3,000,000
Above a $10M sale, a 1x non-participating preference stops mattering.
How we got there
Investors put in $2,000,000 for 20% with a 1x non-participating preference. If the company sells for $5,000,000, investors take their $2,000,000 back, because that beats 20% of the sale ($1,000,000). Founders and others share $3,000,000. If it sells for $30,000,000, investors convert and take 20%, which is $6,000,000, and everyone else shares $24,000,000.
With a participating preference at a $5,000,000 sale, investors take $2,000,000 plus 20% of the remaining $3,000,000. That is $2,600,000, leaving $2,400,000 for everyone else.
Reading your result
When a preference helps you, and when it hurts
Good sign
1x non-participating, the early-stage standard.
Red flag
Participation, or any multiple above 1x.
Liquidation preferences matter most in small or average exits, which are the most common kind. In a big exit, investors usually convert to shares and the preference does not change much.
A 1x non-participating preference is standard and founder-friendly. Multiples above 1x and participating preferences shift a lot of money to investors in modest sales, so treat them as a red flag and negotiate.
FAQ
Liquidation preference questions founders ask
It is the right of investors to get their money back, before anyone else, when the company is sold or wound up.
Investors get back 1 times what they invested before founders and employees receive anything.
Non-participating investors choose either their money back or their share of the sale. Participating investors get their money back and also a share of what is left.
Yes. A 1x non-participating preference is the most common term in early-stage rounds.
Yes. It is one of the most important terms to negotiate, often more important than the valuation itself.