Exit Waterfall Analysis

Expert Cap Table and Liquidation Preference Modeling

Why You Need Our Model?

The times when investors were able to simply calculate the return on investment based on their ownership percentage in the company have long gone. Term sheets have become ever more complicated that it is very easy for investors to calculate their returns incorrectly.

Our waterfall analysis is a proven, fully dynamic, integrated and comprehensive model that is tailored to your specific capital structure so that you can better understand your return in different exit scenarios and valuations!

If you are interested to buy our model without our on boarding service, convinced you need our model you to read the next section to

Waterfall Analysis Explained

A waterfall analysis is a complex economic return modeling tool that presents the sequence of distribution of proceeds to the various stakeholders of the company at time of exit, based on multiple factors. The main ones include:

Capital Structure: For most start-ups, common shares and common options are at the bottom of a long stack of debt, convertibles notes, preferred stock and preferred warrants.  Carefully analyzing the split between debt and equity and seniority among all equity and equity derivatives instruments of a company is a key factor in any exit waterfall model.

Rights Attached to Equity: As further explained below, not all preferred shares have the same rights. Liquidation Preferences types, dividends, anti dilution protection mechanism, conversion rights, options acceleration and other vesting terms for options, all greatly impact an early-stage investor’s overall returns.

Exit Strategy: the analysis for a merger and acquisition (“M&A”) exit scenario is materially different than for an initial public offering (“IPO”) one. In an IPO all preferred shares automatically convert into the publicly-traded common stock and therefore liquidation preferences become a non-factor. However, an exit via IPO comes with different complications, structures and lock-ups that effect the waterfall model.

Understanding Preferred Stock

Convertible Preferred

Convertible Preferred (CP) shares allow the holders to either redeem their investment OR convert their shares into shares of common stock.

Participating Preferred

Participating Preferred shares allow the holders to (i) redeem their investment PLUS (ii) participate with the holders of common stock in remaining proceeds.

Senior Preferred

Ranks ahead of other classes of preferred stock. Receives priority in redeeming their investment. Most commonly, all preferred stock participate on a pari passu.


Expresses the investment amount return as a multiple (1x, 2x, etc.). Most commonly a 1x multiple is set.


Dividends are accruing and payable to holders of preferred stock upon an exit event, either in the from of cash or by being added to the principal.

Cap on Participation

Sets a limit on liquidation preference amount. The investors can either (i) claim the cap amount, or (ii) convert their shares to common; whichever strategy would yield the highest return


Please refer to our Models section to see our highly versatile and user-friendly model. We follow industry best practices and standards of financial modeling, to deliver robust models that are fully dynamic, simple and accurate.

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