How to use the liquidation preference calculator
A liquidation preference decides who gets paid first when a company is sold or wound up. Enter the exit proceeds, the capital the investor put in, the preference multiple from the term sheet and the investor's as-converted ownership, and the tool splits the proceeds between preferred and common holders.
With non-participating preferred, the investor takes either the preference amount or the converted common payout, whichever is larger. With participating preferred, the investor takes the preference first and then shares the remainder by ownership. Add a cap and participation stops at a multiple of the money invested, unless converting pays more. The payout line names the route that was actually applied, and the comparison table shows every structure side by side.
If the exit is smaller than the preference, common holders receive nothing and the investor's gain or loss shows as a negative number. Multiples and caps vary by contract, so take them from the signed documents.
Frequently asked questions
Non-participating preferred takes either the preference amount or the proceeds it would get by converting to common, whichever is larger, but not both. Participating preferred takes the preference first and then shares in whatever is left according to its ownership. The same exit price can leave founders with very different amounts.
Preferred holders are paid first, so the entire exit goes to the investor and common holders receive nothing. The calculator reflects that, and the investor's gain or loss line shows a negative number because the payout is below the amount invested.
A cap limits participating preferred to a set multiple of the amount invested. Once the cap is reached the payout stops growing, and if converting to common would pay more, the investor converts instead. This tool compares both routes, applies the better one and names the route it used.