Liquidation preference calculator
A liquidation preference lets an investor take its money back, or a multiple of it, before ordinary shareholders when the company is sold. Non-participating means the preference or its share, whichever is more.
The formula
Liquidation preference = investor takes its preference or its share, whichever is more
Worked example: £1,000,000 to the investor
The example uses the guide's seed round, £200,000 for 20%, with a matching cap table, exit, fund and market.
- The larger of £1,000,000 (1x preference) and 20% of £3,000,000: £1,000,000
Work out your liquidation preference
Until you type a figure, the results show an example business. Fill in only what you know: from then on every result uses your figures alone, and nothing you type leaves your browser.
Liquidation preference for the example
Example£1,000,000
to the investor
- The larger of £1,000,000 (1x preference) and 20% of £3,000,000: £1,000,000
- At this price the preference is worth more to the investor than its share, so founders get less than their percentage.
Formula: Investor takes its preference or its share, whichever is more.
- Founders receive
- £1,500,000
- Everyone else
- £500,000
Everything your numbers show
For the example business: 27 of 27. Type your own figures to replace them. Select one for its page.
- Valuation£1,000,000post-money
- Pre-money valuation£800,000
- Post-money valuation£1,000,000
- Equity20.0%Equity sold
- Dilution70.0%kept by existing shareholders, down from 100.0%
- Option pool142,857new pool shares
- Fully diluted60.0%Fully diluted ownership
- SAFESimple agreement for future equity89,286shares
- Loan note96,429shares
- Pro rata rights£200,000Pro rata amount
- Liquidation preference£1,000,000to the investor
- Vesting180,000after 18 months
- Cliff120,000at month 12
- SEISSeed Enterprise Investment Scheme£10,000
- EISEnterprise Investment Scheme£6,000
- VCTVenture capital trust£4,000
- TAMTotal addressable market£240,000,000a year
- SAMServiceable available market£60,000,000a year
- SOMServiceable obtainable market£3,000,000a year
- Down roundDown round
- Up roundDown round
- Flat roundDown round
- MOICMultiple on invested capital2.80x
- IRRInternal rate of return22.9%a year
- TVPITotal value to paid-in capital1.50x
- DPIDistributions to paid-in capital0.40x
- Dry powder£24,000,000
How to read your result
Preferences matter most in modest sales. At high prices a non-participating investor converts and everyone shares in proportion.
Watch out for
A participating preference pays the investor twice on the same shares. Check for it in the term sheet.
Last checked . Estimates only, not financial, tax or legal advice: check your accounts and documents, and take advice before you act. More terms in the startup glossary.