Back to Money Strategies
angelLab Available

Participating Preferred

"Double-dips on exit, often misunderstood"

A liquidation preference structure where investors receive their investment back PLUS their pro-rata share of remaining proceeds—effectively getting paid twice.

How It Works

  1. 1

    Investor puts in $2M for 25% of company

  2. 2

    At exit, investor first receives $2M back (1x preference)

  3. 3

    Then investor receives 25% of ALL remaining proceeds

  4. 4

    On $10M exit: Investor gets $2M + $2M (25% of $8M) = $4M

  5. 5

    Founder gets only 75% of $8M = $6M despite 75% ownership

Key Mechanics

1x vs 2x preference multiplier determines first payment

Participation cap limits the double-dip (e.g., 3x)

Capped participating preferred provides some protection

Non-participating is standard and founder-friendly

Regulatory Context

Standard contract terms, no regulatory restrictions. NVCA model documents use non-participating preferred as default.

Ready to Experience This?

Put your knowledge to the test in our interactive simulation lab.