Founder answers
What does a 1× non-participating liquidation preference mean?
Short answer
It means the investor receives the greater of (a) their original investment back, or (b) what they’d get by converting to common and taking their ownership share — but not both. It is the clean, founder-fair, standard preference.
Better-of, not both
On an exit, a 1× non-participating preferred holder elects: take the 1× preference (money back) OR convert to common and take their percentage of the proceeds — whichever is higher. They don’t stack both.
Contrast with participating
A participating preference takes the preference AND a pro-rata share of the remainder (the “double dip”). On a modest exit that can leave founders with far less than their ownership percentage suggests.
Common questions
Is 1× non-participating good for founders?
Yes — it’s the clean, standard, founder-fair preference. Participating preferences are the ones to push back on.
When does the investor convert instead of taking the preference?
When converting to common yields more than 1× their money — typically on a strong exit.
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