What does “raise on participating preferred” mean? How is it so hard for people like me who are good engineers to still not be at the bottom of all these terms lol.
Participating preferred = investor invests 50M on 1x participating preferred and company sells for 100M. The investor makes 50M + their % share of the company. Common stock makes % share of 50M.
They participate in the % sales ON TOP OF their preferred stocks liquidation preference (money in = money out before common stock value is considered)
Now here's where it gets nasty. 2x participating preferred = investor invests 50M and company sells for 100M. Investor makes 100M and common stock makes $0. Or if the company sold for 150M, investor makes 100M and participates in the % stock value from 50M.
It's a bit confusing, but the short is participating preferred is the absolute worst terms for common stock holders (founders included.)