Liquidation & exit
What is Participating Preferred?
A preferred stock structure where investors take their liquidation preference AND pro-rata share of remaining exit proceeds - 'double-dipping'.
Participating preferred gives investors both the liquidation preference AND their pro-rata share of whatever remains after the preferences clear. The mechanism: preferred takes 1x investment back first, then participates in dividing the rest as if converted to common. This is investor-favored and significantly worse for founders at moderate exits. Often capped at 2x or 3x total investment to limit damage. Non-participating (the founder-friendly default at top-tier funds) forces preferred to choose pref OR pro-rata, never both.