An ownership percentage alone cannot tell an employee or founder what an acquisition pays. The preferred-stock economics determine how proceeds cross the cap table.

Two paths for preferred

With nonparticipating preferred, the investor generally compares its liquidation preference with the payout from converting to common. Participating preferred takes its preference and then shares in remaining proceeds, subject to any cap or other negotiated terms. Carta’s explanation distinguishes these mechanisms; the signed agreements determine the actual waterfall.

Follow $30 million

Our illustration has one investor who put in $10 million for 25% and holds a 1× preference. At a $30 million exit, nonparticipating preferred takes $10 million, leaving $20 million for common. With uncapped participation, it takes $10 million plus 25% of the $20 million remainder: $15 million in total. Common receives $15 million.

Stress the quiet terms

Our suggested review uses several exit prices and asks where each holder changes its preferred choice. Add debt, transaction costs, seniority, dividends and participation caps before interpreting a real outcome. This is why two equal headline valuations need not be equivalent offers.

Keep the context

One preferred class; no debt, fees, tax, dividends or participation cap. This is an arithmetic illustration, not legal drafting.

Financial education, not investment or legal advice. Historical notes are retrospective analysis prepared in September 2026, not contemporaneous Venture Trace reporting.

Sources & scope

01

Carta

Liquidation preferences

Source date
7 Aug 2023
Retrieved
16 Sept 2026
Period / geography
Evergreen reference · United States context

Preferred-stock exit economics

Page checked on retrieval date; not a historical snapshot. Educational explanation. Actual agreements, reporting conventions and jurisdictions differ.