Exit priority across the share classes
| Share Class | Key Rights | Exit Priority |
|---|---|---|
| Series C Preferred | Latest round terms, highest liquidation preference | First (most senior) |
| Series B Preferred | Earlier round, may have different terms | Second |
| Series A Preferred | First institutional round | Third |
| Common Stock | Founders and employees — no preference | Last (residual) |
Why common can get nothing in a down exit
In a down exit (sale below last round valuation), liquidation preferences determine who gets paid. Common shareholders (founders, employees) may get nothing even if the company sells for hundreds of millions, because preferred shareholders are paid first.
Common payout: exit value minus the preference stack
Common Payout = Exit Value − Total Liquidation Preferences
Read the preferred stack from an S-1
Check a recently-IPO’d company’s S-1 for its cap table. How many classes of preferred stock were created? What were the liquidation preferences? These convert to common at IPO but shape pre-IPO economics.
What founders actually collect in a modest exit
A startup raised $100M across 3 rounds with 1x preferences. It sells for $120M. Founders own 40% on a fully-diluted basis. What do they actually get?
Headline ownership versus economic ownership
How a new round dilutes earlier preferred
Company has 10M common shares (founders), 2M Series A preferred (investors @ $1/share = $2M raised). Now raising $10M Series B @ $4/share. How much does Series A dilute by?
Check your understanding
Sit with the ideas.
A founder starts with 10 million shares. After Seed (20% dilution), Series A (18% dilution), and Series B (15% dilution), approximately how many of the total outstanding shares does the founder own?
Why: