Term-Sheet Table
Set an exit price and a preferred stack, then replay the exit waterfall — the order in which an acquisition actually pays out. The lesson every founder learns too late: your headline ownership on the cap table is rarely your actual take at exit. Liquidation preferences pay investors their money back first, and the participating clause pays them twice — their preference and a full common share of what’s left. This tool shows the gap live: own 55%, take 35%, and see exactly which clause reordered the payout. Runs entirely in your browser (0 uploads, works offline).
How to use it
- Drag the exit price slider, or load a preset — Non-participating, Participating, or Big exit.
- For each round, set the invested amount and ownership %, and toggle participating vs non-participating preferred.
- Watch the two bars — cap table (what you own) vs exit payout (what you take) — and the headline gap between them.
- Open the X-ray to see what the participating clause cost founders in real dollars, then copy or share your waterfall.
What this clears up (the fundamentals)
- Liquidation preference is paid before common — a 1x preference means each investor takes their money back off the top before founders see a cent. Below the total preferences, founders can own the majority and take home nothing.
- Non-participating preferred picks the better of two — it either keeps its 1x preference or converts to common and rides the upside, whichever pays more. At a big exit it converts and behaves like plain equity.
- Participating preferred is paid twice — it takes its preference back and a pro-rata common share of the remainder. That is the clause founders wave through and pay for at exit.
- Ownership is not payout — the same 20% stake can take 20% of the exit (non-participating, converted) or far more (participating), while founders’ effective take shrinks. The gap is the whole point.
Where it's used
The Founders L1 “Raising on an AI-Native Story” lab and the homepage founder-funnel hook. It’s a miatz build-lab concept playable: play the waterfall here, then learn to build the preference-and-conversion math and the ownership-vs-payout reveal yourself.
FAQ
What is an exit waterfall?
The order in which sale proceeds are distributed at an acquisition. Senior claims (preferred liquidation preferences) are paid first; whatever remains flows to common (founders and converted preferred) in proportion to ownership. This tool runs that order deterministically for your numbers.
What’s the difference between participating and non-participating preferred?
Non-participating preferred takes either its liquidation preference or its as-converted common share — whichever is larger. Participating preferred takes both: its preference back first, then a common share of the remainder. Participating is strictly better for the investor and strictly worse for founders.
Why does the participating toggle change the payout so much?
Because the preference paid off the top shrinks the remainder that common splits, and the participating stake still claims a share of that smaller remainder. Founders absorb the difference. The X-ray shows the exact dollar cost by re-running the waterfall with participation struck out.
Does this model a 2x or stacked preference?
No — this is a clean 1x, single-tier preference model for teaching. Real term sheets add multiples (2x, 3x), seniority stacks, caps, and anti-dilution; the direction of every effect is the same, the magnitude is larger.
Is anything uploaded?
No. Every number stays on your device and the waterfall is computed entirely in your browser — nothing is transmitted, stored, or logged. Turn off your Wi-Fi and it still works.
Limits
A teaching model with a 1x, uncapped, single-seniority preference and instant conversion — it isolates the two clauses founders most often misread (preference and participation). It ignores preference multiples, stacked seniority, caps, option-pool mechanics, and tax. Use it to build intuition and to interrogate a term sheet, not as legal or financial advice.
Related
Part of the Demystify Playgrounds — pair it with the Dilution Slider to see the round that set up this cap table. Explore the rest from the Playgrounds home.
Bookmark this page (Ctrl+D, or ⌘D on Mac) — it works offline the next time you need it.