participating preferred

Definition

Preferred stock that gets both its money back first AND participates in remaining proceeds with common stockholders. The 'have your cake and eat it too' of liquidation preferences.

Example Usage

The Series A participating preferred meant investors got their $10M back plus 20% of what remained—founders got destroyed in the acquisition.

Origin

Venture capital term sheet evolution in the early 2000s

Fun Fact

Participating preferred with no cap is considered founder-hostile and rare in competitive deals—it's basically investors saying 'we don't trust this to work.'

Source: Venture capital financial structures and liquidation mechanics

Related Terms

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preemptive rights

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