Non-Participating Preferred
Preferred stock whose holder must choose at exit between the liquidation preference and converting to common for a pro rata share, and cannot have both. The choice flips where the pro rata share equals the preference: with a 1x preference on a 20% stake, at five times the money invested. Below that the holder is paid the same whatever the price, which founders call the dead zone.
How a startup is financed · 16 of 26Next: Participating Preferred
Practise it
The same cheque written six ways: common, non-participating preferred, participating preferred with and without a cap, a SAFE still unconverted and a convertible note. Slide the exit value and watch who gets paid, in what order, and where each instrument converts.
Open Exit Waterfall Lab, free, 12 minWhere Non-Participating Preferred comes up
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How a startup is financed: keep going
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