Participating Preferred
Definition
Participating preferred stock takes its liquidation preference first and then also shares pro rata in the remaining proceeds, the so-called double dip.
How it comes up in fundraising
Considered off-market for early-stage US deals; standard terms are non-participating, where investors choose preference or conversion.
Frequently asked questions
How does participation change founder outcomes?
In a $50M exit with $10M raised on participating terms, investors take $10M plus their percentage of the remaining $40M, cutting the common holders’ share meaningfully.
What is a participation cap?
A limit (like 3x total return) after which participation stops; a partial fix founders negotiate when they cannot remove participation entirely.
Cite this term
Round Funded. "Participating Preferred." Startup Fundraising Glossary.
Stable URL, it will not change: https://www.roundfunded.com/en/glossary/participating-preferred
Related terms
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