Participating preferred

Preferred shares that get their money back first AND then also share in what is left as if they were common shares.

Example

On a $20M sale with a $5M participating preference, the investor takes $5M and then their percentage of the remaining $15M.

Important

Sometimes called double dipping. Standard early-stage terms are non-participating; participating preferred should make you look very carefully at the rest of the sheet.

Related terms

• Liquidation preference — The right of preferred shareholders to get their money back first when the company is sold, before common shareholders get anything.
• Preferred stock — The share class investors typically receive, carrying rights common shares do not — liquidation preference, anti-dilution and often a board seat.
• Term sheet — A short, mostly non-binding document setting out the main terms of an investment before the full legal documents are drafted.

Lessons that explain it

• Liquidation preference — The term that decides who gets paid when the company sells — and it matters more than your valuation. (12 min)

All 176 terms in the Founder glossary