Liquidation Preference Calculator

What a liquidation preference is

A liquidation preference is the right of preferred stockholders to be paid before common stockholders when the company is sold, merged or wound up. Founders and employees usually hold common stock; investors buy preferred. The preference is set as a multiple of what the investor paid, almost always 1x: the investor gets its money back first, then common is paid from what remains. It applies to a sale, not to an IPO, where preferred normally converts to common.

The term sets the order of payment, so it matters most in modest exits. In a large exit every investor converts and the preference has no effect. In a sale near or below the money raised, it decides whether founders get anything at all.

Non-participating, participating and capped

• 1x non-participating: the investor takes the greater of its money back or what its shares would get as common. It cannot have both. The NVCA model charter writes this as the greater of the preference "or such amount per share as would have been payable had all shares of such series [...] been converted into Common Stock".
• Participating: the investor takes its preference first, then also shares in the rest pro rata with common, as if converted. Investors get paid twice from the same exit.
• Capped participating: participating until the investor's total, preference included, reaches a cap such as 3x what it paid. Above that point it does better by converting, so it converts.

Market terms are founder-friendly right now. In Cooley's Q1 2026 Venture Financing Report, covering 165 financings, 98.2% of deals had a 1x liquidation preference and 96.4% had nonparticipating preferred stock.

Seniority: who is paid first

With several rounds, the charter also sets how the preferred series rank against each other. Under standard (or stacked) seniority, the newest round is paid in full first, then the one before it. Under pari passu, all series share the available money in proportion to their preference amounts, which is the default wording in the NVCA model charter. Seniority only changes the result when the exit is smaller than the total preference stack; above that, every series is paid in full either way.

Worked example (the default inputs)

An illustrative company has 8,000,000 common shares (7,000,000 held by founders and employees, a 1,000,000-share pool), a $2M Seed at $1.00 a share (2,000,000 shares) and a $9M Series A at $3.00 (3,000,000 shares). Both are 1x non-participating with standard seniority. There are 13,000,000 shares in total, so the Series A post-money is 13,000,000 x $3.00 = $39M, and the preference stack is $11M.

Sale at $30M. If the Series A converted it would own 3/13 of the company and get $6.92M, less than its $9M preference, so it takes the $9M. That leaves $21M for 10,000,000 shares (common plus Seed), or $2.10 a share. As common the Seed gets $4.2M, more than its $2M preference, so it converts. Common gets $16.8M, and founders and employees $14.7M. Common owns 61.5% of the shares but gets 56% of the money.

The breakpoints are where things change. Below $9M the Series A takes everything. Common gets nothing until the exit passes the $11M stack: at $15M, common gets $4M, or $0.50 a share. The Seed converts above $19M, and above $39M the Series A converts too, so every share is paid the same. Make the Series A participating and, at the same $30M sale, it takes $13.85M while common drops from $16.8M to $12.92M. Cap that participation at 2x and the Series A stops at $18M, then converts once the exit passes $78M. The chart under the calculator traces these points for your own numbers.

How it changes founder outcomes

Preferences turn a headline price into a very different cheque for common. The more you raise, the higher the stack, so a big round at a rich valuation can leave founders with less from a mid-sized sale than a smaller round would. Before signing, run the exits you think are realistic, not just the one in the pitch deck. Check your ownership with the cap table calculator and across rounds with the dilution calculator, then read the SaaS fundraising guide and the SaaS valuation guide to see where your price comes from.

The calculator follows the NVCA model charter and term sheet. It ignores accrued dividends, option strike prices, vesting, SAFEs and notes that have not converted, escrows, earn-outs and management carve-outs. It is an estimate, not legal advice: your charter decides the actual waterfall.

Sources: NVCA Model Certificate of Incorporation (October 2025) and NVCA Model Term Sheet, liquidation preference sections; Cooley Q1 2026 Venture Financing Report. Read October 19, 2026.

A preference stack is one input to a founder's outcome. To see it next to runway, hiring and the next round, model the company in Adlega.