Liquidation Preference Calculator: Exit Waterfall by Class
Liquidation preference calculator for a sale: 1x to 3x, participating, capped and senior classes, with conversion solved and a waterfall of who is paid what.
- Service
The calculator
01 The exit
02 Common
Ordinary shares and the issued option pool, paid last and only out of what the preferences leave.
03 Preferred
Tier 1 is paid first. Classes on the same tier share pro rata when there is not enough to pay them all.
- To common
- n/a
- Exit price
- n/a
- To preferred
- n/a
Who is paid what
| Holder | Basis | Payout | Share of exit | Return on money in |
|---|
The same stack at five exit prices
How this was worked out
What this model assumes
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How to use spectup's Liquidation Preference Calculator
- 01Set the exit
Enter the sale price, any transaction expenses and a management carve-out if there is one. The figures filled in are an example: overwrite them with your own.
- 02Enter common and every preferred class
Shares for common holders. For each preferred class: money in, shares, the multiple, participating or not, a cap, the seniority tier and any cumulative dividend.
- 03Read the waterfall
Who is paid what at your price, which classes convert, and the same stack at five prices, so you can see where common starts to be paid.
What a liquidation preference does to the split of an exit
A liquidation preference gives preferred shareholders the right to a set amount from a sale, usually the money they put in, before common shareholders receive anything. This liquidation preference calculator runs the whole waterfall: expenses, any carve-out, each preferred class by seniority, then what is left per share, and it decides for every class whether converting to common pays it more.
Boards weighing a sale use it to see who is paid what at a given price, and so does anyone reading the preference clause of a term sheet. When the exit is a sale of the company, spectup works the seller's side as sell-side M&A advisory: the field of acquirers, one timetable and the price that decides every line below.
What does a 1x liquidation preference mean?
The class is owed its money back once, before common, or it can convert to common and take its pro rata share instead. It takes whichever is larger.
WilmerHale's guide for founders defines the preference as the amount of proceeds the preferred shareholders will receive before the common are entitled to anything. In Cooley's second-quarter 2026 deals, 95.8% carried a 1x preference and 96.4% were non-participating, per its venture financing report.
Take a class that put in $5M for half the shares. At a $4M exit it takes all $4M and common takes nothing.
At $10M it takes $5M either way. At $20M it converts and takes $10M, the same as common.
| Series | Sale price | Value |
|---|---|---|
| Preferred class | $0 | $0 |
| Preferred class | $5M | $5M |
| Preferred class | $10M | $5M |
| Preferred class | $20M | $10M |
Participating, non-participating and capped preferred
The participation right decides whether the class also shares in what is left after its preference. The same $5M for half the shares, at four exit prices:
| Scenario | Non-participating | Participating | Gap |
|---|---|---|---|
| $4M sale | $4M | $4M | none |
| $10M sale | $5M | $7.5M | $2.5M |
| $20M sale | $10M | $12.5M | $2.5M |
| $40M sale | $20M | $22.5M | $2.5M |
A participating liquidation preference takes its $5M and then half of the rest, which is why it's called a double dip. A cap stops the class at a multiple of its money, preference included: capped at 2x, the class takes $7.5M at a $10M sale, stops at $10M at $20M, and by $40M converting is worth more than the cap, so it converts and takes $20M.
What do 2x and 3x preferences do?
They multiply what the class is owed before common sees anything, and they move the price at which converting starts to pay. The same $5M for half the shares:
- 1x is owed $5M.
- 2x is owed $10M. At $15M it takes $10M and common $5M.
- 3x is owed $15M. At $20M it takes $15M and common $5M.
Multiples above 1x are uncommon in current venture terms, as the Cooley figures above show.
How does seniority decide who is paid first?
A senior class is paid in full before a junior one sees anything. Classes on the same tier are pari passu: when there isn't enough for both, they share what there is in proportion to what each is owed.
Two classes owed $4M and $6M, each holding 1,000,000 shares beside 8,000,000 common, in a $5M sale: on the same tier they take $2M and $3M; with the $4M class senior, $4M and $1M; with the $6M class senior, nothing and $5M. Common takes nothing in all three.
| Whole | Part | Share |
|---|---|---|
| Same tier | Class owed $6M | 60% |
| Same tier | Class owed $4M | 40% |
| $4M class senior | Class owed $6M | 20% |
| $4M class senior | Class owed $4M | 80% |
| $6M class senior | Class owed $6M | 100% |
When does common get paid at all?
Below the preference stack, only through a carve-out. Above it, common shares what is left with any participating class and with every class that converted.
On the 1x example above, common first reaches 1% of the price at about $5.05M, and from $10M the preferred class converts and the two split the price evenly. When common gets nothing at your price, the calculator gives the price at which it first takes 1%, and the five-price table shows how each line moves as the price rises.
A management carve-out answers a stack that would leave the team with nothing: a share of the price set aside for management and employees before any preference is paid. The calculator splits it between the common holders by shares.
The order this liquidation preference calculator pays in
- Expenses come off the price first.
- The carve-out is reserved for common, split between the common holders by shares.
- Preferences are paid tier by tier, tier 1 first, pro rata inside a tier when the money runs out. A cumulative dividend is added as simple interest on the money in.
- What is left is split per share between common, participating classes and converted classes. A capped class stops at its cap and the rest flows on.
- Conversion is solved. Each class is flipped to common and back, the waterfall rerun each time, until no class can do better on its own.
This liquidation preference calculator leaves out escrow, earn-outs, anti-dilution adjustments, debt repaid at closing beyond the expenses line, and tax. The charter and the purchase agreement decide the real split; the cap table calculator builds the share counts that go into it.
How spectup runs the sale the waterfall pays out
On a sale, spectup is mandated and paid by the seller only, from EUR 10M of enterprise value up.
On the sale of a regional freight operator, spectup held four qualified acquirers to one timetable, with an underbidder live to the end.
The second-highest offer is what decided the number the winner paid.
The sell-side process write-up sets out each stage. spectup is paid a monthly retainer while the mandate runs, and its transaction fee only when the sale closes.
Questions readers ask about this calculator
What people search for alongside this calculator, answered.
01What is a liquidation preference?
A right of preferred shareholders to be paid a set amount from a sale or wind-down, usually their investment, before common shareholders receive anything.
02What does a 2x preference mean?
The class is owed twice its money before common is paid. $5M of non-participating preferred at 2x, holding half the shares, is owed $10M: at a $15M sale it takes $10M and common takes $5M.
03What does non-participating preferred mean?
The class takes its preference or converts to common and takes its pro rata share, whichever is larger, but never both.
04How does a liquidation preference work in an acquisition?
The purchase price, less the deal's expenses and any debt repaid, runs down the preference stack. The most senior class is paid first, then the next tier, with classes on the same tier sharing pro rata if the money runs out. Whatever is left goes to common, to participating preferred and to any class that converted because its pro rata share was worth more than its preference. Each class's choice changes what the rest take, so the calculator tests every choice against the others.
05What is the order of payment when a company is sold?
Creditors and the costs of the sale come first. Then preferred classes in order of seniority, then common, alongside participating and converted preferred. A carve-out for management sits ahead of the preferences.
06Can preferred shareholders convert to common in a sale?
Yes. Preferred stock normally converts into common at the holder's choice, and a non-participating class converts whenever its share of the price is worth more than its preference. On a $5M 1x class holding half the shares, that is any sale above $10M.
07Should a company with preferred shareholders hire a sell-side M&A advisor?
Yes, when the sale price decides whether common is paid at all. Once the price clears the preference stack, common shares in every extra dollar, and a second competing offer is what lifts the price. Holding several acquirers to one deadline is the sell-side advisor's work.
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