Non-participating liquidation preference

A non-participating liquidation preference is a shareholder protection mechanism whereby preferred investors receive their liquidation preference amount first, then choose between retaining the preference OR converting to ordinary shares and participating pro rata — they take whichever is more advantageous. Unlike the participating variant, they do not receive both the preference and the pro-rata share. This structure is more founder-friendly as it caps investors' share of value at high-exit scenarios. In fundraising negotiations, non-participating is increasingly the market standard.

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Example: an investor holds 25% with a CHF 4.0 million non-participating preference. At a CHF 25.0 million exit: preference = CHF 4.0 million vs. conversion = 25% × 25.0 = CHF 6.25 million — investor converts and receives CHF 6.25 million. At CHF 12.0 million exit: preference = CHF 4.0 million vs. conversion = 25% × 12.0 = CHF 3.0 million — investor keeps preference and receives CHF 4.0 million, protecting the downside while capping upside at the conversion break-even.

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Hectelion models non-participating liquidation preference waterfalls across all exit scenarios in fundraising structuring mandates.