Deal Terms
Fully Participating Preferred
Preferred stock that participates in both its liquidation preference AND the remaining proceeds after conversion — the most investor-favorable liquidation structure.
Fully participating preferred stock allows holders to first receive their liquidation preference (e.g., 1x their investment), and then participate proportionally in the remaining proceeds as if they had converted to common stock — essentially getting paid twice. This is the most investor-favorable (and founder-unfavorable) liquidation preference structure. Example: investor puts in $5M for 25% ownership with 1x fully participating preferred. Company sells for $20M. Investor receives: $5M preference first, then 25% of remaining $15M = $3.75M. Total: $8.75M (vs. the $5M they'd receive with a straight 1x preference, or $5M cap conversion). Fully participating preferred has become less common in founder-friendly markets — 1x non-participating is the norm in competitive VC markets.