Re:My company sold for $100M and I got zilch – how can that be?
by alecbenzer on Friday October 25, 2019 @06:47PM
(#21359980)
Normally the way the preference works is that you "give up" your shares in exchange for being paid back, as if you had initially given the company a loan instead of bought equity.
E.g., you invest $1M, company sells for $15M, and you want to be able to get $2M (2x) of the $15M in exchange for your investment.
With regular preferred shares, you get paid your $2M and then that's it, your initial $1M is paid back.
With participating preferred, you get your $2M, but then act as if you still had the equity that you bought with the $1M (even though you basically already got paid back for it). So you get $2M + whatever your cut of the remaining $13M is.
E.g., you invest $1M, company sells for $15M, and you want to be able to get $2M (2x) of the $15M in exchange for your investment.
With regular preferred shares, you get paid your $2M and then that's it, your initial $1M is paid back.
With participating preferred, you get your $2M, but then act as if you still had the equity that you bought with the $1M (even though you basically already got paid back for it). So you get $2M + whatever your cut of the remaining $13M is.