Definition
A clause letting preferred investors double-dip by getting their liquidation preference back AND participating in the remaining proceeds with common shareholders. It's having your cake, eating it too, and taking a slice of everyone else's.
Example Usage
The participating preferred terms meant investors got their $10M back first, then took 30% of everything else—founders walked away with peanuts despite a $40M exit.
Origin
Preferred stock term that became common in venture deals during the 1990s, considered founder-unfriendly since the 2000s
Fun Fact
Participating preferred became so reviled that by 2015, it appeared in fewer than 10% of Silicon Valley deals—using it now signals either a desperate founder or a predatory investor.
Related Terms
Translate This Term
See “participation rights” in Corporate Speak, Gen-Z Slang, Pirate Speak, and more.
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