Most popular · Free tool
Exit waterfall simulator: who gets what when the company sells
Enter your share classes, their preferences and participation rights, then test exit values. The simulator runs the waterfall the way a lawyer would: preferences first, convert-or-not decisions, caps, then common.
| Holder | Preference taken | Share of the rest | Total | % of exit |
|---|---|---|---|---|
| Seed investors (converts) | $0 | $5.87M | $5.87M | 19.6% |
| Series A investors | $8.00M | $0 | $8.00M | 26.7% |
| Option holders | – | $2.93M | $2.93M | 9.8% |
| Founders | – | $13.2M | $13.2M | 44.0% |
What is a liquidation waterfall?
The order in which exit proceeds are paid. Preferred shareholders receive their liquidation preference first, usually 1x the money invested, then whatever remains flows to common shareholders: founders, employees and investors who converted. A $20M exit with $5M of 1x preferences leaves $15M for everyone else.
Non-participating vs participating preferred
A non-participating investor chooses: take the preference, or convert to common and take their percentage. They convert when the percentage is worth more, which happens at larger exits. A participating investor takes the preference and then shares again as common, sometimes up to a cap of 2x or 3x. Participation is the term that quietly moves millions at mid-sized exits.
Why the convert decision needs iteration
Whether investor A converts depends on how much is left after investor B’s decision, and the reverse. The simulator repeats the waterfall until no investor would change their choice. That is why a spreadsheet with a single pass often gets the answer wrong.
How to use this in a negotiation
Run your actual term sheet at 0.5x, 1x and 3x the post-money valuation. If founders receive less than their ownership share at a 1x outcome, the structure, not the valuation, is the problem. Push for 1x non-participating; it is the seed-stage standard.
Questions founders ask
Does the order of share classes matter?
Yes. Later rounds are usually senior and get paid first. Enter the most recent round as the most senior class, or mark the classes pari passu if the documents say so.
What about the option pool?
Unexercised options are usually treated as common. The simulator includes the pool in the common percentage you enter.
Is this legal advice?
No. It is a model. Have your lawyer confirm how your charter defines seniority, participation and caps.
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The calculator shows the math. SeedScope shows the number investors will use.
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