End-Game: Exit
Who loots first when the game ends.
A publisher offers $500M to acquire the studio. Payout time.
Preferred shareholders get their Liquidation Preference first - investors collect their original checks off the top.
What's left flows down to common shareholders: founders, the option pool, and anyone whose preferred elected to convert. The waterfall determines who actually walks away rich.
Investor does NOT convert - the preference is better.
Investor converts - pro rata is better.
Below 187M the investor takes the preference. Above 187M they convert. As a founder you want to exit as far above the conversion point as possible.
Exit at $500M. Investors hold a 1x NON-PARTICIPATING preference on $75M invested and own 30% of common. Roughly, how much do they take?