non-participating preferred

Advanced 🚀 Startup / VC

Definition

Preferred stock that must choose between taking its liquidation preference OR converting to common and sharing the remaining proceeds—can't do both. The slightly-less-greedy version of investor terms.

Example Usage

Thankfully our investors have non-participating preferred, so in this $30M exit, they can't double-dip and take all the founder proceeds.

Origin

Venture capital term sheet standards, part of preferred stock structure terminology

Fun Fact

Non-participating preferred is considered 'founder-friendly' in VC terms, which tells you everything about how unfriendly standard terms can be.

Source: Venture capital term sheets and investment documentation

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