Deal Terms
Liquidation Stack
The ordered hierarchy of how different shareholder classes receive proceeds in a liquidity event, from most senior to most junior.
The liquidation stack (or liquidation waterfall) describes the priority order in which different classes of shareholders receive proceeds during a liquidation event (acquisition, dissolution, or other liquidity event). Later-stage preferred stock typically sits at the top (most senior), followed by earlier preferred rounds, then common stock and option holders at the bottom. The stack determines who gets paid first and how much remains for each subsequent layer.
In Practice
The company's liquidation stack had Series C ($50M, 1x non-participating) at the top, followed by Series B ($30M, 1x participating), Series A ($10M, 1x participating), then common shareholders. When the company sold for $120M, Series C took $50M off the top, Series B took $30M plus participation, leaving only $15M for Series A participation and common holders.
Why It Matters
The liquidation stack determines actual returns for every stakeholder in an exit. Many founders don't understand their position in the stack until a liquidation event reveals that their common shares receive far less than expected after preferred investors take their cut.
VC Beast Take
Complex liquidation stacks with multiple rounds of participating preferred can create situations where a company exits for a seemingly large number but founders and employees receive surprisingly little. This is why understanding the full stack — not just your own terms — is critical before any exit negotiation.
Related Concepts
Further Reading
Understanding Liquidation Preferences: What Employees Need to Know
Liquidation preferences determine who gets paid first when a startup exits. In some scenarios, investors take everything and employees get nothing — even in a 'successful' acquisition. Here's how it works.
What 'Fully Diluted' Means and Why Employees Should Care
Your "1% ownership" might actually be 0.6% on a fully diluted basis. Here's what fully diluted means, how option pools dilute everyone, and how to calculate your real ownership.
Understanding Your Startup's Fundraising: What It Means for Employees
When your startup raises a new round, your equity changes in ways that aren't always obvious. Here's what dilution actually means, why higher valuations can be misleading, and what new investor rights mean for you.
How to Read Your Startup's Cap Table as an Employee
Your startup's cap table holds the answers to what your equity is really worth. Here's how to read it, understand your ownership percentage, and see where you stand in the stack.
The Founder's Guide to Dilution: How Much You'll Actually Own
Walk through a realistic Seed to Series B scenario with real numbers. See exactly how option pools, round sizes, and preferences affect what founders actually take home at exit.
What a Series A Process Actually Looks Like
The Series A is where fundraising gets real — partner meetings, deep diligence, and term sheet negotiations. Here's a realistic week-by-week breakdown of what to expect.
Related Guides
Understanding Startup Equity and Dilution: A Complete Guide
How equity actually works, what dilution really means, and what founders take home in different exit scenarios. Real math, worked examples, no hand-waving.
The Complete Guide to Startup Fundraising
A step-by-step guide to raising capital for your startup — from deciding when to raise, to closing your round and everything between. Written for founders, by people who've seen both sides.
Newsletter
The VC Beast Brief
Join thousands of founders and investors. Every Tuesday.
VentureKit
Ready to launch your fund?