Concept-of-the-week
Waterfall analysis
You sell the company for $20M. Now comes the math you should have run before signing the term sheet.
Your Series A investor put in $3M with a 2x liquidation preference. That's $6M off the top, before founders, employees, or anyone else holding common stock sees anything.
This is the waterfall: the structured payout order that governs how exit proceeds flow. Investors with preferred stock collect first. Common shareholders get whatever remains.
The key variable is participation rights. With non-participating preferred, investors choose between taking their liquidation preference or converting to common, whichever pays more. With participating preferred, they take their preference and then share in what's left alongside common shareholders.
On a $20M exit with $3M invested at 2x non-participating: if conversion pays more, the investor converts. If not, they take $6M and leave the rest. With participating preferred, they take $6M first, then their pro-rata share of the remaining $14M.
At modest exits, this distinction is often the difference between a meaningful payout for founders or nothing at all.
Model the waterfall before you negotiate.
What we’re watching
Secondary capital, now industrial scale
Source: 137ventures.com
137 Ventures closed over $700M across two new growth funds last week, lifting AUM past $15B on the back of a SpaceX stake now worth more than $10B.
Look past the headline number. 137's model is buying shares from founders, executives, and early employees through structured secondaries, often years before an IPO.
That market is now well-funded, and the offers will reach down-market. If you're a Series B founder, expect inbound calls from secondary funds within 12 months of your next round.
Two things to know before you say yes. Your ROFR sits with the company and your lead investor, so any sale runs through them first. And the percentage you sell signals conviction. Selling 5–10% of your stake reads as prudent diversification. Selling 25%+ tells your board you're hedging on the outcome.
Model the dilution and the optics before the call comes.
Sources: Bloomberg | PR Newswire
This week’s highlights
Sierra raises $950M at $15.8B valuation, co-led by Tiger Global and GV (Source)
Astranis raises $450M ($300M equity + $155M debt) at ~$2.8B valuation (Source)
QuantWare raises $178M Series B led by Intel Capital and FORWARD.one (Source)
Corgi raises $160M Series B at $1.3B, doubling valuation in four months (Source)
Panthalassa raises $140M Series B at ~$1B led by Peter Thiel (Source)
See you next week,
Team EquityList
