Liquidation & exit
What is Non-participating Preferred?
Preferred stock that gets EITHER the liquidation preference OR pro-rata of exit proceeds - whichever is more. The founder-friendly default.
Non-participating preferred forces a choice at exit: take the liquidation preference (typically 1x your investment) and stop, OR convert to common and take pro-rata of the entire exit. The preferred holder picks whichever produces more money. This caps founder dilution from preferred protection - at large exits, preferred converts and founders take their full common-equivalent share. Non-participating 1x is the modern Silicon Valley default for top-tier rounds.