Article · 8 min read

Breakdown of the Term Sheet: Liquidation Preference

Raunak Bhiwal · Eximius Ventures Free Beginner India

Written by a SEBI-registered Indian pre-seed fund, so the worked example is in the deal shapes you will actually see here, and it cites a real Indian exit (Milkbasket to Kalaari) to make it concrete. On a $300K-for-10% deal at a $5M sale, it shows 1x non-participating pays the investor $500K while participating pays $905K, cutting the founders' share by $405K on one modest exit.

  • A clean India-context worked example: participating preferred quietly moved $405K from founders to the investor on a single $5M exit
  • Non-participating means the investor picks the greater of their money back OR their equity share, never both
  • Frames 1x non-participating (capped at most at 1.5x to 2x) as the fair Indian-market standard to hold, referencing an actual local exit
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The question it answers

  1. What is a liquidation preference and how can a 1x participating clause quietly gut my exit?

Read with it

  1. This is the reference point for what a clean deal looks like, written by the people who have watched hundreds of Series A term... Y Combinator Article · 12 min read A Standard and Clean Series A Term Sheet Y Combinator
  2. Feld (co-author of Venture Deals) does the arithmetic most founders never run: on a $5M investment for 50% and a $20M exit, a... Feld Thoughts Essay · 10 min read To Participate or Not (Participating Preferences) Brad Feld
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