Free tool

Exit waterfall calculator

The short answer

Enter your preferred rounds and see what common receives at each exit value, once the preference stack is paid and each class has decided whether converting beats its preference.

Stacked seniority, later rounds paid first
Non-participating and participating preferred
The exit value where common finally keeps a real share

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Your preference stack

The example is a seed and a Series A, both 1x non-participating.

Common

Common shares (founders, employees)

Preferred rounds

In the order you raised them. Later rounds sit above earlier ones.

Round

Invested

Shares issued

Preference

Participation

Round

Invested

Shares issued

Preference

Participation

Preference stack

$10,000,000

paid before common sees a dollar

Common shares

8,000,000

founders and employees together

Proceeds by exit value
Exit value	Preferred	Common	Common share	Per share
$10M	$10,000,000	$0	0.0%	$0.0000
$25M	$11,400,000	$13,600,000	54.4%	$1.7000
$50M	$19,230,769	$30,769,231	61.5%	$3.8462
$100M	$38,461,538	$61,538,462	61.5%	$7.6923
$250M	$96,153,846	$153,846,154	61.5%	$19.2308

How to read it

Below $10M the preferred take everything, because their preference is paid first and converting to common would give them less. Above it, each class converts when conversion beats its preference, and common starts to keep a real share.

This is the clean case. Participation, caps and stacked seniority change the answer, which is what the waterfall inside Capable handles against your real share classes.

How a waterfall is worked out

1. Pay the preferences, most senior first. Later rounds usually sit above earlier ones. Within a tier, a shortfall is shared in proportion.

2. Ask each class whether it would rather convert. A non-participating investor takes the greater of the preference or what their shares are worth as common. Above a certain exit value, converting always wins.

3. Share what is left. Common, converted preferred and any participating preferred divide the remainder by shares.

4. Apply participation caps. A capped participating class stops at its cap, and what it would have received above that goes back to everyone else.

Employees ask what their options are worth. The honest answer starts with the preference stack, not the headline price.

What this tells you

Whether an offer is worth taking

An acquisition below the preference stack pays the investors and leaves the team with nothing. Knowing the number before the conversation changes the conversation.

What an option is really worth

Fair market value times shares is not what a holder receives at an exit. The waterfall is.

What a new round costs later

Every round adds to the stack. A big preference today is a floor the whole team has to clear tomorrow.

Waterfall questions

What is a liquidation preference?+

The amount a preferred investor is paid before common holders receive anything. A 1x non-participating preference means the investor takes the greater of their money back or what their shares would be worth if converted to common.

When does preferred convert to common?+

When converting is worth more than taking the preference. At a high enough exit, a 1x non-participating investor converts and shares proportionally; below that point they take their money back instead.

What does participating preferred change?+

A participating investor takes the preference and then shares in what is left, so common receives less at every exit value. A participation cap limits the total, after which the investor is better off converting.

Why does common get nothing at a low exit?+

Because the preference stack is paid first. If investors put in $10M with a 1x preference and the company sells for $10M, the preference absorbs the whole price and common receives nothing, however many shares it holds.

Keep reading

Run it on your real share classes

Capable holds the terms of every class, so the waterfall reads your own preferences, participation and caps. 14-day free trial, no card.

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