You’re building a SaaS company and dreaming of a massive exit. But before you start calculating your hypothetical payout, you need to understand the exit waterfall — how investors actually get paid out first.

A liquidation preference maps out the exact order of operations for who gets paid during a liquidity event.

• Benchmark: 1x non-participating is the market standard for early-stage deals.
• Rule: Never sign a participating preference term sheet without running the downside math.
• Warning: Ignoring the seniority stack will leave founders with zero dollars in a fire sale.

Here is the process checklist to map out your exit waterfall logic.

1. Identify the preference multiple: Check the term sheet for the exact multiplier on invested capital.
2. Determine participation rights: Validate if the investor is non-participating or fully participating in the upside.
3. Map the seniority stack: Standard practice ranks the latest series of funding highest in the payout waterfall.
4. Calculate the downside threshold: Figure out the exact exit price where common shareholders actually start making money.
5. Run scenario models: Build out spreadsheets for low, medium, and high exit valuations to see your personal net payout. For reference, study a few liquidation preference examples to see how this plays out in the wild.

The market standard typically sits at a 1x non-participating preference for early-stage deals, supported by standard venture capital benchmarks.

Sample math.
If you raise $2M on a 1x non-participating preference for 20% equity, the exit must clear $2M before common stock sees a single dollar. If you sell the company for $10M, the investor chooses between their $2M preference or their 20% equity share ($2M). They take the higher number. If you sell for $5M, they take their $2M preference, and you split the remaining $3M.