Reading the exit waterfall

What it does

The exit waterfall models who gets paid what at exit. UK startup waterfalls combine two effects:

1. Liquidation preferences — preferred classes (Series A, B, etc.) get paid back first, typically at a multiple of paid-up capital (1x is standard).
2. Common pro-rata — after preferences are paid, the remaining proceeds are split pro-rata among everyone who chose not to take their preference.

Blankitt's Cap Table page includes a waterfall slider. Drag it to a hypothetical exit valuation; the table updates to show:

• Total prefs paid — sum of all liquidation preferences taken
• Common pool — exit valuation minus prefs
• Per-holder payout — what each shareholder actually receives + whether they took preference or common

Non-participating preferred

The default model in Blankitt is non-participating preferred. Each preferred holder picks the better of:

• Take their preference (paid_up × liquidation_preference)
• Convert to common and take pro-rata of the entire exit

Whichever pays them more — they're smart, they pick what's in their interest.

At low exit valuations, preferred typically take preferences (the company is worth less than the cap-table-implied per-share value at common). At high exit valuations, preferred convert to common (common pro-rata exceeds 1x preference). Somewhere in the middle there's a break-even point where it's indifferent.

Worked example

Cap table:

• 10,000 Ordinary at £0.01 nominal (founders)
• 4,000 Preferred A at £2.50 paid-up, 1x liq pref

Exit at £50,000:

• Preferred A pref = 4,000 × £2.50 × 1 = £10,000
• Preferred A pro-rata = (4,000 / 14,000) × £50,000 = £14,286 ← higher!
• Preferred A takes common; nobody takes prefs
• Common pool = £50,000
• Founders get (10,000 / 14,000) × £50,000 = £35,714

Exit at £8,000:

• Preferred A pref = £10,000
• Preferred A pro-rata = (4,000 / 14,000) × £8,000 = £2,286
• Preferred A takes preference (£10,000 > £2,286)
• But £10,000 > £8,000 → prefs cap at exit value
• Founders get £0

What's NOT modelled (yet)

• Participating preferred — getting preference PLUS pro-rata of remainder. Some Series A deals have it; v1 assumes non-participating.
• Anti-dilution adjustments on conversion (broad-based weighted average, full ratchet)
• Multi-class seniority — Series B paid before Series A
• Vested-but-unexercised options participating. Today the model assumes options are exercised pre-exit.
• Liquidation preference caps ("up to 3x then convert to common")

These ship in Phase 3 v2 once the simple model is validated by real users.

Tips

• Use the slider to find the break-even point for your preferred holders — useful for negotiating term sheets.
• The waterfall ignores vested-but-unexercised options. If you want them to participate, simulate an exercise before running the waterfall.
• For multi-round companies, the waterfall doesn't enforce seniority — Series A and Series B get treated as parallel pools. If you need seniority modelling, exit-valuation order them by liquidation_preference descending in the cap table.