Non-Participating Preferred

Non-participating preferred is the modern standard preferred-stock structure where investors choose between their liquidation preference or their as-converted share, but not both. The choice is between debt-like protection (preference, locks in downside) and equity-like upside (as-converted, captures growth), with investors choosing whichever is higher at the moment of exit. It is the default structure modern venture investors use and the structure founders should expect and insist on at every priced round.

The mechanics:

The choice:

• Take preference: investor receives liquidation preference amount (typically 1x investment). Common holders share remainder.
• Convert to common: investor's preferred converts 1:1 to c...